John Healey has indicated that the public should prepare for a challenging Budget in two weeks’ time, which may not grant government departments extra cash to cover pay rises for doctors and nurses.
Attending the International Monetary Fund (IMF) meeting in Bangkok, Thailand, the Chancellor said the British public recognised the pressure on state finances caused by global turmoil, expecting departments to "manage with the budgets we’ve got".
Mr Healey and prime minister Andy Burnham face a difficult test ahead of the October 28 Budget.
They have promised to support households and businesses facing higher costs driven by the US war with Iran, as inflation weakens government spending power and raises borrowing costs.
Speaking to the BBC, Mr Healey was asked if the coming fiscal statement to the Commons would be a tough, or even an austere Budget.
He replied: "Well, it’s a tough time. People can people can see the global economic conflicts, they know the pressure it’s putting on them, they understand it’s putting pressure on the government."
The chancellor was then pressed whether this meant that government departments would see their budgets adjusted for inflation, to help meet pay commitments to workers like nurses and doctors.
He replied: “Look, I’ll set out all the figures as you’d expect in two weeks’ time at the Budget.
“But people recognise these times that are tough for everyone, and what they do expect of a government is to manage with the budgets we’ve got, deliver the public services they need, and that’s the challenge for government.
“Our departments have the spending, and the Prime Minister and I being in lockstep about this.
“Where we want to do things, we have to make sure that we can pay for them within the budgets that we’ve got and control spending, and that’s part of the discipline.
“That’s part of the discipline that the IMF here in Bangkok this week has endorsed that they see in Britain, and perhaps want to see more from other countries too.”
The IMF this week praised the UK for its steps to manage its budget deficit over the long-term, and said Britain was doing a good job at reducing this compared with other countries.
The influential global economics body also said the UK was weathering the impacts of the Iran War better than had been expected, but warned inflation from the conflict was likely to get worse before it gets better.
Mr Healey and the prime minister have reportedly rebuffed a request by health secretary Yvette Cooper for more cash to cover the costs of a pay deal for nurses, and told her to fund it out of the NHS’ existing budget.
This could have an impact on the delivery of frontline services within the NHS.
