John Healey will deliver his first budget as Chancellor on October 28, pledging to move “money and power out of Westminster”.
Announcing the date of the budget on Friday, Mr Healey promised plans would be “built on fiscal discipline”.
He said the budget would “meet our fiscal rules” and “give businesses and families some of the stability they need to plan for the future”.
Looking back at Andy Burnham’s first two weeks as Prime Minister, Mr Healey said the new government was “working fast to restore hope and back Britain’s communities” and had “begun to kickstart growth in every postcode”.
But he will face significant challenges as he finds more money for Mr Burnham’s devolution priorities and increased defence spending amid warnings the Iran war will further squeeze the public finances.
The start of Mr Burnham’s premiership has seen a succession of announcements that are likely to call for additional spending from Mr Healey.
These include cost-of-living measures such as a cut in VAT on energy bills and reduced business rates for pubs, along with plans for radical devolution in England and an expansion of technical training in schools.
Mr Healey will also have to set out how the Government will fund £5 billion of defence spending announced in May’s Defence Investment Plan (Dip) without details of how it would be paid for.
And he will come under pressure to increase that funding further, having resigned as defence secretary ahead of publication of the Dip, arguing it did not provide enough money for the armed forces.
Meanwhile, experts have warned Mr Healey that he will need to either raise taxes or cut spending elsewhere as pressure on the public finances has left no room for extra borrowing.
The National Institute of Economic and Social Research (Niesr) said on Wednesday the ongoing conflict in Iran would mean more persistent inflation and higher interest rates.
Stephen Millard, Niesr’s deputy director for macroeconomics, suggested Mr Healey should look at the welfare bill or the pensions triple lock as areas for potential cuts.
He also suggested Mr Healey should consider raising income tax, which would break Labour’s 2024 manifesto pledge not to raise that levy, national insurance or VAT.
That pledge, along with the fiscal rules set by Rachel Reeves on borrowing, are likely to constrain Mr Healey’s room for manoeuvre.
In a letter to Commons Treasury Committee chairwoman Dame Meg Hillier, the Chancellor stressed his commitment to fiscal discipline.
He said: “Fiscal credibility is the bedrock of economic stability and national security.
“That is why we will abide by the fiscal rules, ensuring we retain a buffer to protect us against uncertainty and the impact of instability in the Middle East.”
In her last budget, Ms Reeves left a £22 billion buffer against her fiscal rules, but persistent inflation due to the Iran war could have eaten away at this.