Chancellor John Healey has instructed government departments to prepare for spending reductions to accommodate new policy commitments announced by Prime Minister Andy Burnham. The directive comes ahead of Healey’s first Budget, scheduled for 28 October, which he emphasized will prioritize fiscal discipline.

Since taking office, Burnham has introduced a series of costly initiatives, including measures to alleviate the cost of living, such as lowering the VAT on electricity bills and reducing business rates for pubs. His administration has also proposed significant devolution reforms across England and aims to expand technical education in schools. However, ministers have been informed through a joint letter from Healey and Burnham that no additional funding will be allocated to these programs.

Healey underscored the need for departments to reassess their existing budgets. “If we’re serious about new priorities as a second-stage Labour government, we have to be serious about — and they have to be serious about — reprioritisation of their plans, their budgets,” he said. Departments have been urged to find savings by cutting or redirecting funds from less productive or legacy programs that no longer align with the government’s current objectives.

The chancellor faces considerable challenges, including financing Burnham’s devolution agenda and increased defense expenditures against a backdrop of mounting geopolitical tensions. The ongoing conflict in Iran is expected to place further pressure on the public finances. Healey must also address how to finance the £5 billion increase in defense spending announced in May’s Defence Investment Plan (DIP), which lacked detailed funding provisions.

Healey, who resigned as defense secretary prior to the DIP’s release citing insufficient resources for the armed forces, stopped short of committing to the previously suggested target of raising defense spending to 3 percent of GDP by 2030. However, he indicated that a plan outlining a path toward meeting NATO’s 3.5 percent spending commitment by 2035, with an interim 3 percent target, would be included in next year’s spending review.

The chancellor reiterated that the upcoming Budget would adhere to the government’s fiscal rules and seek to provide stability to businesses and households amid economic uncertainty. Departments will need to balance these fiscal constraints with the government’s expanded policy ambitions as preparations continue for the October Budget announcement.