UK debt hits 3 trillion pounds as Chancellor John Healey prepares first budget

Chancellor John Healey will stand before the House of Commons on Wednesday for his first budget statement under Prime Minister Andy Burnham, with British national debt having crossed 3 trillion pounds ($4 trillion) for the first time. Servicing that debt now absorbs 8% of government spending, a figure that frames every choice in the statement.

Healey took the Treasury portfolio in July when Burnham became prime minister. His predecessor, Rachel Reeves, confronted the same constraint after Labour returned to power in a landslide election win. The International Monetary Fund recently reviewed the trajectory of the public finances without objection, but the debt load remains the central limit on spending plans.

Inflation in the United Kingdom has reached 3.5%, a near one-year high, and is projected to climb further as the Iran war continues to push fuel prices up. Bottlenecks in the Strait of Hormuz have tightened global oil and gas supplies. The Bank of England is expected to raise interest rates in the near term, which would increase the cost of servicing government debt.

The British economy has grown strongly this year and proved more resilient than forecast, but Healey has limited room to fund the Labour government's plans for public services. He said ahead of the statement that he aims to give businesses and families "some breathing space" against rising living costs, with possible measures to offset higher energy prices.

Revenue proposals center on sectors that have profited from the rate environment. A higher surcharge on bank profits is anticipated, and taxes on the gambling sector may rise. Healey has held the defense brief before; he resigned as defense secretary earlier this year over funding levels, and any statement on military spending will draw attention. Burnham has pledged to reduce and eventually end homelessness, improve care for older people, and meet NATO defense spending targets.

Matthew Amis, an investment director at Aberdeen Investments, said a restrained budget could lower government borrowing costs in financial markets and over time release money for schools, hospitals and the military. He added a caution: "The one note of caution is that international investors are very quick to punish countries with a weak fiscal story. Just ask France." France has seen protests that exposed the state of its finances, and bond markets worldwide are watching debt levels.

Debt levels are being watched closely in markets abroad as well. Healey's statement lands Wednesday in the House of Commons.