Badenoch urges Healey to fund defence and cut welfare before the 28 October Budget

Defence funding and the spending review

Kemi Badenoch, the Conservative leader, called the delay in setting out defence funding unconscionable and urged Chancellor John Healey to find the money for 3% of GDP on defence in the Budget on 28 October. Healey resigned as defence secretary under Sir Keir Starmer after a row over funding, arguing Britain should commit to spending 3% of its economy on the military by 2030. Under Prime Minister Andy Burnham, Healey will not set out a path to the Nato target of 3.5% of GDP by 2035 until next year's spending review, and 3% is only an intermediate point on that route. Badenoch argued the extra cash needed to reach 3% is under a third of the welfare growth since Labour took office.

Spending cuts and borrowing

Badenoch said the chancellor appeared to be aiming for a low-key statement, and she rejected that approach in a speech in London.

Britain cannot afford to do as little as possible.

She set out her own plan to find £70bn of savings, including cuts to the welfare bill, with half of those savings going to reduce the deficit under her party's golden economic rule. She said Labour's approach would require deep public sector cuts in 2029 and predicted an election before then. Badenoch also rejected the view that the International Monetary Fund had recently backed the government's borrowing plans, and she brushed aside its praise.

The IMF clearly don't know this Labour Party like I do.

The latest figures show government borrowing reached £18.3bn in August, while debt interest payments stand at £8.8bn, the largest since records began in 1997.

Bank tax fears and the bond markets

Amid speculation that Healey will raise taxes on banks, Badenoch warned that higher bank taxes would push up mortgage costs and business loan rates, leading to fewer jobs. Bloomberg reported that London bankers were lukewarm about an extra bank tax but not outraged, and that Citigroup's UK chief had said as much on Bloomberg TV. Andy Haldane, a former Bank of England chief economist who had advised Burnham, said the government's path 'does not work' for the economy. He urged ministers to protect the fiscal headroom, the gap between self-imposed fiscal rules and forecasts, given high borrowing costs and the effects of the Iran and Ukraine wars. Speaking at a pre-Budget event run by Ipsos and NIESR, he put it plainly:

Now is the time for this government to be putting on more insurance cover rather than less.

Haldane said he expected a Budget aimed at backbench MPs rather than at business and bond markets.

Liz Truss and the 2022 mini-budget

Badenoch warned Burnham not to repeat the mistakes of Liz Truss's 2022 mini-budget, which she linked to a sharp sell-off in government bonds and a fall in sterling. Badenoch, who served as Truss's international trade secretary, said she was not Truss and that the public could tell the difference. Truss, who spent 49 days as prime minister, has announced a book called Bank Job, due out later this month, in which she argues the fallout came partly from the Treasury, the Bank of England and the OBR watchdog. Badenoch said Truss needed to take responsibility for the mini-budget, one way or another.

Labour's response and the crackdown on music

Badenoch mocked a government crackdown on people playing music on public transport, saying that job belonged to ticket inspectors rather than the prime minister. Labour Party chairwoman Bridget Phillipson accused Badenoch of favouring the wealthiest with tax breaks while offering ordinary people nothing. Badenoch's position is that Labour is putting up taxes and spending more on welfare instead of cutting, and she said the bond markets are already judging the government's ability to control spending.