Labour will be FORCED to raise taxes at October Budget as Iran war wipes out Healey's headroom

From the Newshound archive · first published 21 September 2026.

Chancellor John Healey has seen his fiscal headroom nearly halved — falling to £12bn from the £23.6bn he inherited — as the Iran war pushes borrowing costs higher and strains the public finances, according to KPMG economists. Levies on estates and capital gains are now seen as the most likely revenue-raising tools, with the Budget pencilled in for 28 October. Labour donor Dale Vince is pressing for CGT to be aligned with income tax at up to 45 per cent, arguing the move would bring in £14bn. Angela Rayner has privately acknowledged there is only a 'slim chance' of hitting the 1.5 million homes target, a shortfall that threatens a fresh growth downgrade from the OBR.

The OBR is now expected to cut its growth forecast because Labour built fewer than two-thirds of the homes required in its first two years.

KPMG warns Healey has 'limited scope to support growth' and must raise taxes to keep bond markets onside.