Market News

By William Schomberg and David Milliken | Reuters

Summary

• UK welfare spending is projected to exceed 11% of economic output this year.

• Finance Minister John Healey says welfare costs must fall, but rejects indiscriminate cuts.

• The government faces pressure to address youth unemployment and rising benefit expenditure.

• The Resolution Foundation says the budget’s £100 energy-bill reduction is spread too thinly.

LONDON, Oct 29 (Reuters) — British Finance Minister John Healey said the government would reduce welfare spending as he sought to tackle one of the major public expenditure challenges remaining after his first budget announcement.

“We have to bring the benefits bill down. You don't do that by crude cuts,” Healey said in an interview with the BBC.

Healey did not commit to a timetable for reducing welfare spending when asked whether costs would fall before the next general election, which is due no later than mid-2029.

Prime Minister Andy Burnham later told reporters that the government was “working flat out” to reduce the welfare bill as quickly as possible.

Healey’s tax and spending plans offered short-term support to households affected by rising energy prices linked to the US-Iran war. Some of the measures were financed through higher taxes on banks, savers and landlords.

However, the budget did not resolve longer-term questions, including how to increase defence spending to 3% of economic output, offset the effects of inflation on public expenditure and contain the growing welfare bill.

Welfare spending includes pensions and support for people considered too ill to work. It is projected to exceed 11% of the UK’s economic output this year.

The opposition Conservative Party and some bond investors argue that the scale of welfare expenditure demonstrates a lack of commitment by Burnham’s Labour government to reducing borrowing.

Nevertheless, financial markets reacted broadly positively to Healey’s budget, with 10-year UK government borrowing costs falling to a one-month low on Thursday.

Tackling youth unemployment

Healey highlighted youth unemployment as a key area requiring action.

“This system is unsustainable,” he said. “I feel a moral duty to deal with these youngsters (who) have been written off.”

He said the government would help young people who were out of work and require them to take up opportunities offered to them.

Eduin Latimer, senior research economist at the Institute for Fiscal Studies, said the approach could generate savings, but added that this was “much more uncertain than just directly cutting entitlements”.