Simulating reactions to the Budget.

When you think about the UK today, what is the first issue that comes to mind?

When I think of the United Kingdom today, the absolute priority that comes to mind is our shared security and defense in the face of Russian aggression. With the war on our doorstep, we cannot afford any gaps in our armor, which is why making the absolute most of our Security and Defence Partnership is so vital. It's madness to let the bureaucratic scars of Brexit get in the way of a unified front when Putin's shadow fleet and hybrid threats are actively trying to destabilize our continent. We must cooperate deeply on sanctions, intelligence, and defense technology because European strategic autonomy is impossible without close, clear-eyed coordination with London.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

This approach will be read in Brussels as a welcome sign of fiscal responsibility, which is certainly better than watching a neighbor slide into a spiral of unstable debt. However, the critical question we will ask is where those spending cuts are going to fall. If the Chancellor is balancing the books by quietly slicing away at the defense budget or delaying vital security investments, then this fiscal discipline is nothing but a illusion. You cannot protect your house from a storm by cutting the budget for the roof. If they want to be taken seriously as a sovereign power and a reliable security partner, they must show that their commitment to our collective defense is not the first thing sacrificed on the altar of domestic bookkeeping.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

These soaring borrowing costs are a stark, sobering reminder of reality. When gilt yields rise to levels we haven't seen since the financial crisis, it tells us that the markets are demanding a heavy premium for British risk. It shows how incredibly thin the ice is for their public finances. This economic vulnerability makes it even harder to believe they can easily fund a massive expansion of their defense capabilities without making extremely painful choices elsewhere. If London has to spend billions more just to service its existing debt, their strategic ambitions will inevitably be squeezed, which only increases my worry about their reliability as a defense partner in these dangerous times.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

Yes, a higher surcharge on bank profits would absolutely shift the competitive dynamic, giving continental hubs like Paris and Frankfurt a distinct advantage over London. For instance, if the Chancellor yields to pressure to increase the bank surcharge significantly, it would push the overall tax rate for banks in London far above their European competitors. A global bank comparing its operational costs would see that keeping its trading desks or European headquarters in Paris, where we have worked hard to create a stable and competitive environment, is far more attractive than absorbing punitive, unpredictable tax hikes in the UK. This kind of fiscal instability only accelerates the post-Brexit migration of financial services and capital toward the single market, where rules are clearer and we do not treat major employers as simple cash cows.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

Over the next two years, we can expect to see our cooperation grow in areas of shared existential necessity, specifically through our Security and Defence Partnership. We will certainly find ways to coordinate more closely on enforcing sanctions, tackling Russia's illegal shadow fleet, and combating foreign information manipulation and cyber threats. Where it will stall, however, is on any issue where London expects to enjoy the benefits of our single market without accepting its rules. We will see significant friction and very little progress on structural defense industrial integration, as our negotiations on British participation in our SAFE defense financing initiative already collapsed because they refused to accept our necessary legal frameworks. Furthermore, any attempts by the UK to gain easy access to our markets while resisting dynamic alignment on regulations or rejecting youth mobility agreements will hit a solid wall in Brussels. We are happy to cooperate as partners, but there will be no cherry-picking.

What would the EU want from the UK in return for closer cooperation?

The European Union expects a simple, non-negotiable principle from the United Kingdom: reciprocity and respect for our common rules. If London wants closer cooperation, whether on energy, security, or regulatory alignment, they must stop trying to cherry-pick the benefits of our Union while refusing the responsibilities. For example, on the vital issue of youth mobility, we expect them to agree to a meaningful, uncapped reciprocal scheme for our young people to study and work, rather than hiding behind arbitrary, politically-driven quotas. Similarly, if they wish to integrate into our defense industrial frameworks or energy markets, they must contribute fairly to our cohesion budgets and accept the jurisdiction of our rules. We are ready to build a strong, deep partnership, but it must be a two-way street based on mutual trust, not a continuous negotiation where one side expects to bypass the single market's integrity.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

The arrival of Andy Burnham in Downing Street has certainly injected a new energy into our discussions, but it also brings a healthy dose of caution. On one hand, we welcome his stated desire for closer ties and a more constructive dialogue with the European Union. It is refreshing to hear a British leader speak openly about improving our agreements rather than constantly threatening to tear them up. However, we are also watching closely because we have seen seven prime ministers in a decade, and this constant domestic political instability makes it very difficult to build long-term, trusted strategic plans. While his tone is positive, Brussels will judge him entirely on his actions—whether he is willing to accept the reciprocal rules that come with closer cooperation, or if we are simply entering another chapter of polite British hesitation.

What risk in this Budget is London not taking seriously enough?

The risk they are completely ignoring is the absolute fragility of their sovereign debt in an era of global instability. With thirty-year gilt yields piercing six percent, London is playing a highly dangerous game by running with an incredibly narrow fiscal cushion to avoid tough political decisions. They are behaving as if they have all the time in the world to balance the books, but the bond markets are already signaling that their patience is exhausted. If John Healey tries to paper over the multi-billion-pound funding gaps in their defense and infrastructure plans with clever accounting or vague promises of future growth, a sudden market correction will shatter their economic plans overnight. You cannot build a serious strategy on thin ice, and right now, London is skating on the thinnest ice imaginable.

From where you sit, what would a good Budget on 28 October look like?

From where I sit, a good budget on October 28th would be one that chooses courage over political convenience. It would clearly and immediately fund the path to that three percent defense target, proving that London understands the absolute urgency of the geopolitical threats we face. I want to see massive, concrete resources allocated to military production, ammunition, and joint European security initiatives, rather than vague promises delayed to future spending reviews. Finally, a serious budget must maintain a competitive and stable environment for investment, rather than resorting to unpredictable, punitive tax hikes on businesses and banks that only drive capital away from London and toward the single market.

If you could give the Chancellor one sentence of advice, what would it be?

Stop trying to balance your books by delaying vital defense investments, because a country that cannot protect its security will soon have no economy left to manage.

When you think about the UK today, what is the first issue that comes to mind?

The first thing that comes to mind is their ongoing structural productivity crisis, which has only been exacerbated by the long-term trade frictions of being outside the Single Market. Even with some modest growth nudges recently, the UK economy is still struggling with weak business investment and a highly constrained labor market. When you lose that seamless regulatory alignment with your largest trading partner, you introduce persistent policy uncertainty, and that's the ultimate enemy of genuine, productive investment. Watching how they try to navigate this—attempting various resets with Brussels while trying to jumpstart their domestic productivity—remains a highly complex and illustrative case study for all of us in macroeconomic policy.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

That is actually a highly welcome signal for those of us watching from Brussels. It shows that the UK Treasury is choosing to take its own fiscal rules seriously and is prioritizing structural stability over easy, politically expedient borrowing. From a technocratic viewpoint, balancing discretionary measures with genuine revenue raising or spending discipline is the only way to anchor long-term economic credibility. Given the current pressures of higher interest rates and global uncertainty, demonstrating this level of fiscal responsibility is precisely what the UK needs to do to rebuild trust with its European partners and reassure the bond markets.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

It completely reinforces my concerns about the sheer scale of the fiscal squeeze the UK is facing. When ten-year gilt yields climb back to levels we haven't seen since the financial crisis in 2007, the market is sending a very clear, clinical signal about inflation risks and the massive cost of servicing government debt. With the Bank of England signaling that they might need to keep monetary policy tight to counter sticky inflation, especially with global energy shocks from the Middle East, the UK's fiscal headroom is shrinking by the day. For me, this trend highlights why any big, unfunded spending pledges—like rushing to hit that three percent defense target—are economically dangerous right now. The Chancellor is under intense pressure to deliver a budget that reassures these highly sensitive bond markets. If the UK doesn't stick to strict fiscal discipline and show a credible plan to manage its debt, investors will simply keep demanding a high risk premium, which will drag down their long-term growth and productivity even further.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

It absolutely would change the dynamics, further tilting the playing field in favor of continental hubs. If the UK raises its bank surcharge, it pushes their total tax rate on banks even further above what competitors in the EU are offering. Take a specific comparison with Frankfurt or Dublin. Right now, when you combine the UK's corporate tax, the bank levy, and the surcharge, a typical bank faces a total tax rate of over forty-six percent. In Frankfurt, that rate is closer to thirty-nine percent, and in Dublin, it is under twenty-nine percent. If London decides to increase its surcharge—even by a couple of percentage points—it makes the UK's fiscal environment highly uncompetitive. Because banking activities and capital are incredibly mobile, international investment banks looking to book global transactions or base their European operations will naturally look to Frankfurt, Paris, or Dublin to shield their returns on equity from that extra fiscal drag.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

We are seeing clear progress in areas where both sides share mutual, practical vulnerabilities. Over the next two years, cooperation will continue to grow in energy security and environmental frameworks, as we have already seen with the agreements to extend our energy ties and discussions around linking emissions trading systems. There is also real momentum building around security, particularly regarding intelligence sharing, combating illegal migration, and tackling cyber threats under the Security and Defence Partnership. Even practical, reciprocal arrangements like the return of British students to Erasmus+ by next year show that there is appetite for cooperation where the benefits are highly tangible and politically straightforward. Where it will inevitably stall, however, is on anything that looks like cherry-picking access to the Single Market. The UK is pushing for deals to cut red tape and costs for its farmers and food producers, but Brussels will remain absolutely firm: you cannot have frictionless trade in agrifood or industrial goods without accepting our full regulatory standards, including dynamic alignment and the oversight of the European Court of Justice. Since no British government seems willing to cross those domestic red lines, major breakthroughs on trade will remain completely stalled, leaving us with a relationship that is cordial and cooperative on security, but economically distant.

What would the EU want from the UK in return for closer cooperation?

If the UK wants closer cooperation on things that benefit its own economy—like cutting red tape on agri-food trade or linking emissions trading schemes—the EU is going to expect some very clear, tangible concessions in return. The biggest, most non-negotiable ask from Brussels right now is a comprehensive Youth Mobility Scheme. The EU wants to make it much easier for young people aged 18 to 30 to live, study, and work across borders, and they are pushing for this to be a core part of any wider reset. The UK remains incredibly nervous about this, trying to cap numbers and shorten the duration because of domestic immigration politics, but the EU is holding its ground. Beyond that, the EU expects the UK to agree to dynamic regulatory alignment in the areas where they want market access, and they want guaranteed, long-term assurances on reciprocal fishing rights. It is a very simple, classic European position: we will not allow the UK to cherry-pick the benefits of our market without paying the financial and regulatory entry fees.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

The transition to Andy Burnham in July has certainly injected a different energy into the conversation here in Brussels, though it comes with a familiar set of institutional boundaries. On one hand, there is a distinct sense of weariness regarding yet another change of leadership—the seventh Prime Minister in a decade is a statistic that always raises eyebrows in a technocratic environment that craves long-term stability and predictability. It makes planning consistent, structured policy negotiations incredibly difficult when the political deck is constantly being reshuffled. On the other hand, Burnham’s explicit interest in fostering closer ties and his plans to attend the upcoming UK-EU summit in November have been noted with cautious interest. His regional focus and willingness to consult the public on the relationship suggest a more open posture, but the fundamental reality in Brussels has not changed one bit. While we welcome a more constructive and collaborative tone, any actual progress still hinges entirely on the UK's willingness to respect the integrity of the Single Market and play by the rules.

What risk in this Budget is London not taking seriously enough?

The absolute biggest risk that London is not taking seriously enough right now is the sheer vulnerability of their fiscal headroom to external, macroeconomic shocks—especially in the wake of the conflict in Iran. The new Chancellor, John Healey, has repeatedly stressed his commitment to the strict fiscal rules inherited from Rachel Reeves, particularly balancing the day-to-day budget. But with global energy prices spiking and UK borrowing costs already hitting their highest levels in nearly two decades, that thin buffer of headroom is evaporating incredibly fast. If they push ahead with major spending commitments on things like regional devolution or social care without raising enough real revenue, any further rise in global interest rates will completely obliterate their fiscal targets. They are playing with fire by assuming the bond markets will remain patient while they operate on such a razor-thin margin of error.

From where you sit, what would a good Budget on 28 October look like?

From a macroeconomic perspective, a good Budget on October 28 would be one that prioritizes strict fiscal discipline and long-term structural credibility over short-term political wins. First, it must be "scorecard positive," meaning that any new discretionary measures or targeted support—like energy subsidies for households—are entirely funded by genuine tax rises or spending cuts, rather than added borrowing. With the war in Iran having already eaten away billions in fiscal headroom through surging gilt yields, the Chancellor cannot afford to let the UK's fiscal buffer drop below a safe margin, or he risks triggering a highly damaging bond market sell-off. Second, the Budget needs to move away from vague growth promises and lay out a clear, predictable tax strategy that incentivizes genuine productive investment rather than penalizing highly mobile capital. If the Treasury achieves this balance, it will signal to Brussels and international investors that the UK is serious about stability, helping to anchor the economy through these highly volatile global shocks.

If you could give the Chancellor one sentence of advice, what would it be?

Do not sacrifice your hard-won fiscal credibility for short-term political wins; show the markets a fully funded, transparent plan that anchors stability through these global shocks.

When you think about the UK today, what is the first issue that comes to mind?

What immediately comes to mind is the stark warning we just got from the MI5 chief. He confirmed what some of us have been shouting about for ages: Russia has massively escalated its hybrid warfare, running arson, cyberattacks, and sabotage campaigns right on British soil. It is a textbook example of how the Kremlin operates just below the threshold of conventional war to try and intimidate us. The British are finally waking up to the fact that national resilience is a frontline defense issue, and we in the EU need to stop overcomplicating things and match that exact level of vigilance.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

If John Healey goes down that route, it'll be read in Brussels with a mix of relief and deep frustration. On one hand, keeping borrowing in check shows fiscal sanity, which is great for market stability, especially when we're all dealing with the economic fallout of the conflict in the Middle East. No one wants a chaotic British economy dragging down European markets. But on the other hand, we know exactly what this means in practice. If he refuses to borrow and tries to fund everything through tax rises or cutting other departments, it makes that 3% defence target look like a total fantasy. We've seen the reports showing he needs to find some £35 billion just to plug inflation gaps and meet defence commitments. If he tries to squeeze that out of an already stretched domestic budget without borrowing, the political reality is that defence will get sacrificed to protect public services, and we'll be left with more empty promises instead of real military capability.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

It tells me that the UK is in a serious fiscal bind, and the markets are pricing in that reality. When government borrowing costs spike like this, it is a clear warning sign that the British state is running out of easy options to fund its basic commitments, let alone its grand ambitions. The IMF just pointed out that London needs an extra eleven billion pounds a year just to hit that three percent defense target by 2030, and these soaring yields make raising that kind of cash incredibly expensive. My worry is that instead of making the hard choices to prioritize European security and defense, the British government will use these market pressures as an excuse to kick the defense spending can even further down the road. That would be a massive mistake because you cannot negotiate with security threats, and Vladimir Putin certainly is not waiting for gilt yields to come back down.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

A higher surcharge would definitely tilt the playing field, making EU hubs like Paris or Frankfurt look much more attractive for global firms. Banks are highly mobile, and if the UK hits them with a bigger tax bill on top of their standard corporation tax, those institutions will naturally look to shift their capital and high-value operations elsewhere to protect their returns. For example, if a major US investment bank is deciding where to base a new multi-billion euro loan book or trading desk, a steep UK tax hike makes moving those assets and senior roles to Paris a no-brainer. The French capital has already been aggressively courting London's banking talent post-Brexit, and making London even more expensive to operate in would just accelerate that drift right into the EU's hands.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

Over the next two years, we are going to see a lot of growth in very practical, high-stakes security areas. We have already laid the groundwork with the Security and Defence Partnership, and we are seeing real progress with the UK joining the EU's massive Ukraine Support Loan initiative, which lets British defence firms tap into those contracts to supply Kyiv. Working together to squeeze Russia's shadow tanker fleet, coordinating on sanctions, and pooling our intelligence to counter Kremlin-backed sabotage and cyberattacks on European soil is where we will see the most intense, active cooperation. When the house is on fire, you don't argue about the garden fence; you just grab the bucket, and both Brussels and London understand that. Where things will stall is on anything that touches the core principles of the EU single market or the UK's post-Brexit red lines. We are going to hear plenty of warm, polite rhetoric at the upcoming summit in Brussels, but when it comes to the nitty-gritty of agrifood rules, product standards, or mobility, the progress will be painfully slow. The British want the benefits of a smooth relationship without the regulatory alignment that goes with it, and the EU is not about to compromise its single market to make things easy for them. So, while we will lock arms on defending the continent and supporting Ukraine, the trade and regulatory side is going to remain stuck in the mud of bureaucratic negotiations.

What would the EU want from the UK in return for closer cooperation?

The EU is not a charity, and if London wants closer cooperation, Brussels will demand a heavy price in return. First and foremost, they will demand that the UK sign up to dynamic alignment. If the British want to smooth out trade on agrifood or link our emissions systems, they have to accept our rules, and that means the European Court of Justice having the final say on disputes. There is absolutely no room for cherry-picking. On top of that, the EU is going to push hard for a youth mobility scheme, which is a massive priority for Brussels. We want young Europeans to have the right to study and work in the UK easily again, even if British politicians are terrified of how that plays with their domestic immigration debates. And on security, if the UK wants access to our massive defense-industrial programs and funding, they have to pay their fair share and respect the EU's decision-making autonomy. We are happy to cooperate, but it has to be a two-way street, not a menu where London only picks the dishes they like.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

When Andy Burnham took over in July, it definitely shifted the atmosphere in Brussels. After the constant revolving door of prime ministers, there was initially some heavy eye-rolling about yet another change at Downing Street, but Burnham has actually brought a fresh dynamic. Unlike the previous setup, he seems much more open to a serious, pragmatic dialogue about fixing the post-Brexit mess. He is already pushing for closer relations, talking about cutting red tape for exports, and even showing a willingness to engage on things Brussels really cares about, like a youth experience scheme. Plus, his clear stance on state-backed threats—like acknowledging Russian interference in the Brexit vote—plays incredibly well with those of us focused on security and hybrid warfare. The feeling here is cautious optimism. Brussels sees him as someone we can actually negotiate with, but the underlying rule remains the same: we welcome the friendlier tone, but he still won't be allowed to cherry-pick the benefits of the single market.

What risk in this Budget is London not taking seriously enough?

The biggest risk London is not taking seriously enough is the absolute delusion that they can delay a firm commitment to the 3% defence target while the threat landscape is actively exploding. John Healey is trying to play a classic, short-sighted Treasury game of protecting existing programs without actually accelerating anything. By pushing the hard decisions on the 3% roadmap down the road to next year's spending review, they are trying to balance their books on the back of our collective security. They are ignoring the fact that our adversaries are not working on a cozy, multi-year Whitehall bureaucratic timeline. If London keeps trying to manage defence through penny-pinching and procrastination instead of treating it as an urgent existential priority, they are going to wake up one day and realize that "fiscal headroom" doesn't buy you protection from a hybrid attack or a missile.

From where you sit, what would a good Budget on 28 October look like?

A good budget from John Healey on October 28 would be one that completely abandons the typical treasury hand-wringing and actually funds European security. For those of us looking at the continent's safety, a good budget would explicitly lay out a fully funded, legally binding roadmap to hit that 3% defence spending target by 2030, rather than kicking it down the road yet again. If Andy Burnham's government wants to prove they're a serious strategic partner, they need to show they can fund these vital defense commitments with real money right now, instead of hiding behind "fiscal discipline" while the threat from Russia and the Middle East grows more dangerous by the day. A strong budget would put an end to the empty rhetoric and show that the UK is ready to invest in the hard military power we need to keep the continent secure.

If you could give the Chancellor one sentence of advice, what would it be?

Stop trying to balance your books on the back of our collective security, and fund the three percent defence target now before the Kremlin makes that decision for you.

When you think about the UK today, what is the first issue that comes to mind?

The first issue that comes to mind is their association to Horizon Europe and the broader question of how we cooperate on research and innovation. It's a key area where we share mutual interests in maintaining scientific competitiveness, and managing the financial contributions for their participation is a very concrete part of our budgetary operations now. Of course, given my past role in the Article 50 negotiations, I always look at these arrangements through the lens of institutional stability and ensuring a fair financial balance for the Union.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

In Brussels, particularly within the Commission and financial policy circles, this approach by Chancellor John Healey will be read as a reassuring and highly pragmatic step toward fiscal discipline. At a time when global bond markets are highly sensitive to sovereign debt levels and we are managing our own extensive borrowing programmes, demonstrating that new spending is fully funded through tax rises or spending cuts rather than expanding the deficit is the right signal to send. It aligns closely with the emphasis we place on long-term fiscal sustainability and rules-based budgetary discipline. While the domestic political choices behind tax rises or spending cuts are entirely for the UK to navigate, the overarching commitment to not taking on more debt to fund discretionary measures will be seen as a welcome effort to anchor market stability and maintain investor confidence.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

As a former negotiator and someone who now regularly engages with global debt markets to issue EU bonds, I see this as a very clear signal from the international financial community. When 10-year gilt yields push past five and a half percent, the highest we have seen since 2007, it tells us that investors are demanding a significant fiscal risk premium to hold UK debt. While some of this is driven by global inflationary pressures and energy shocks affecting sovereign yields everywhere, the scale of the move in gilts reflects deep market caution ahead of Chancellor John Healey's upcoming budget. For the UK, this immediate pressure severely constrains their fiscal headroom. It proves that markets will not tolerate unfunded spending or ambiguous fiscal targets, which reinforces my view that any major UK commitments, especially on defence or industrial investment, must be anchored in absolute fiscal realism if they want to retain international credibility.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

A higher UK bank surcharge would certainly alter the competitive balance, primarily by accelerating the shifting of capital, operations, and talent toward continental hubs like Frankfurt, Paris, or Amsterdam. London already carries an exceptionally high effective tax rate on bank profits compared to its peers, and pushing that surcharge up further—reversing the previous cut to three percent—widens the gap significantly. As a concrete example, when a global investment bank is allocating its balance sheet and choosing where to book a new, highly profitable European trading desk, they run very precise comparisons on their post-tax return on equity. If the UK tax burden on those profits becomes uncompetitive compared to the thirty-nine percent rate in Frankfurt or the framework in Paris, the bank will naturally choose to expand its EU entities. We have already seen financial institutions gradually build up their post-Brexit presence in the eurozone, and a major fiscal divergence like a higher bank surcharge simply makes the financial argument for shifting those remaining European market-making operations to the continent much more compelling.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

Over the next two years, I expect to see the most tangible growth in our structured cooperation on security, energy transition, and defence alignment. Following the establishment of our Security and Defence Partnership and as we prepare for the second EU-UK Summit in Brussels, we've a clear roadmap to deepen cooperation on hybrid threats, maritime security, and sanctions enforcement. There's also real momentum to streamline technical matters like agrifood rules and linking our emissions trading systems, which are practical areas where both sides have a strong, mutual economic interest in reducing friction. On the other hand, I expect broader structural and financial cooperation to stall. There are deep, fundamental disagreements regarding youth mobility and the wider movement of people, where the UK's domestic red lines directly clash with the principles of our single market. More importantly, while Prime Minister Andy Burnham has raised ambitious long-term ideas about a customs union or single market participation, the reality is that the European Commission's bandwidth over the next two years will be heavily consumed by negotiating our own next Multiannual Financial Framework. We simply won't have the institutional appetite to reopen core Brexit treaties or negotiate complex new financial access arrangements for a third country.

What would the EU want from the UK in return for closer cooperation?

To put it simply, the EU's position is that you cannot have the benefits of the single market without accepting its corresponding responsibilities and rules. If the UK wants closer economic integration, simplified regulatory checks, or access to our procurement programmes, the EU will expect reciprocal, legally binding commitments in return. Specifically, the primary request from our side remains a comprehensive and formalised youth mobility scheme to restore cross-border opportunities for young people to study and work. Alongside that, we would expect full regulatory alignment on veterinary and sanitary standards if they want to reduce friction for agricultural trade, as well as strict adherence to the level playing field provisions we've already negotiated. From my perspective as Director-General for Budget, any closer sector-specific integration also requires a clear, proportionate financial contribution to the Union's budget to cover administrative and operational costs, ensuring that EU taxpayers are not subsidising access for a third country.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

The transition to Andy Burnham in July has certainly brought a noticeable shift in tone, which Brussels is observing with a mix of interest and cautious pragmatism. On one hand, there's an appreciation for his clear emphasis on regional equity, public investment, and economic stability, which aligns well with our own focus on cohesion and growth-supporting policies. The upcoming summit in November is being viewed as a key opportunity to establish a constructive, structured dialogue. On the other hand, the fundamental reality of our relationship hasn't changed. While we welcome a cooperative partner, Brussels remains highly disciplined about our institutional boundaries. The message from our side remains consistent: any deeper cooperation or access to Union frameworks must respect the integrity of the single market and come with equivalent commitments and regulatory alignment, regardless of who is in Downing Street.

What risk in this Budget is London not taking seriously enough?

The risk that London is not taking seriously enough is the severe erosion of their fiscal headroom caused by the ongoing war in Iran. While Chancellor John Healey’s commitment to a "scorecard positive" budget funded by tax rises or spending cuts rather than new borrowing is a step in the right direction, the conflict has already created a massive fiscal shortfall that could easily halve their buffer against the fiscal rules. Operating with such a dangerously narrow margin of error leaves the UK economy incredibly vulnerable to any further global energy or inflationary shocks. If they do not establish a much more robust contingency fund, they risk a sudden shift in investor sentiment that could rapidly drive those already high gilt yields even higher, leaving them with no room to maneuver if the geopolitical situation deteriorates further.

From where you sit, what would a good Budget on 28 October look like?

From where I sit, managing a large-scale sovereign debt issuance programme, a good budget on October 28 would be one that prioritises fiscal discipline and transparency above all else. The most important element would be a clear, credible demonstration that any new spending or cost-of-living measures are fully funded through sustainable tax rises or spending cuts, rather than expanding the deficit. Given that the geopolitical situation in Iran has already squeezed the UK's fiscal headroom, the Chancellor needs to show the global bond markets that he's committed to maintaining a robust buffer against his fiscal rules. A good budget would avoid any surprises that could further spook investors or drive gilt yields higher, choosing instead to anchor market stability and reinforce the UK's standing as a reliable, predictable financial actor.

If you could give the Chancellor one sentence of advice, what would it be?

Prioritise absolute fiscal discipline and build a robust contingency buffer, because in the current volatile geopolitical climate, global bond markets will show no tolerance for unfunded commitments or squeezed margins of error.

When you think about the UK today, what is the first issue that comes to mind?

When I think about the UK today, the first thing that comes to mind is their ongoing effort to renegotiate their relationship with the European Union. Prime Minister Andy Burnham has been pushing quite hard for a more pragmatic, closer trade and economic dialogue, with a major bilateral summit coming up in Brussels next month. From an economic perspective, the data tell a more nuanced story than the simple headlines about rejoining or staying isolated. What we're actually seeing is a very deliberate, step-by-step negotiation focused on specific European Public Goods, like linking emissions trading schemes, simplifying agrifood regulations, and improving energy market cooperation. It's a fascinating test case of how a major neighbor can dynamically align with EU rules without full membership, all while trying to repair the structural fiscal drag left behind by the initial Brexit shock.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

In Brussels, this approach from John Healey will be read as a highly welcome signal of fiscal responsibility and institutional discipline. Given the current macroeconomic instability driven by the war in Iran and the resulting global inflationary pressures, there is a strong collective desire to see major neighboring economies maintain stable public finances rather than risking market volatility. By prioritizing a fully funded, "scorecard positive" budget through tax increases or spending adjustments instead of relying on increased borrowing, the UK is directly aligning itself with the kind of structural prudence that the IMF and European institutions consistently advocate. However, the data tell a more nuanced story when we look at the domestic reality behind these numbers. While the commitment to avoid further borrowing is reassuring for bond markets and European onlookers, it places an incredibly heavy burden on the UK’s internal public services and defense ambitions. In Brussels, we'll be watching very closely to see exactly where these spending cuts or tax rises fall, because if the funding is squeezed too tightly out of existing departmental envelopes, it raises serious questions about how the UK can realistically sustain its broader international and defense commitments over the medium term.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

These rising gilt yields confirm that the UK is operating under incredibly tight fiscal constraints. With ten-year yields hovering near five and a half percent, the highest we have seen since 2007, the market is sending a very clear warning signal ahead of the upcoming Autumn Budget. The data tell a more nuanced story than a simple domestic policy failure, as this is partly driven by global factors like sticky inflation, the energy shock from the Iran war, and rising yields in the US and Europe. However, the domestic pressure is undeniable. The Office for Budget Responsibility's fiscal headroom has been severely eroded, meaning the government has very little room to maneuver. This reality makes me even more skeptical about the UK's ability to easily fund ambitious long-term plans, like the 3% defence target, without triggering further market anxiety. It reinforces my view that the Treasury must prioritize absolute fiscal discipline and present a highly credible, fully funded budget on October 28th to restore investor confidence.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

A higher surcharge on bank profits would absolutely shift the competitive dynamic between London and EU financial hubs. The data tell a more nuanced story than the simple argument that banks will instantly flee London the moment taxes rise, but the cumulative fiscal pressure is a real concern. Right now, when you combine the standard UK corporation tax with the existing bank surcharge and the bank levy, financial institutions in London already face a significantly higher total tax rate than their competitors in European centers. For example, if a major global bank like HSBC or JPMorgan Chase is deciding where to book its European investment banking operations or base its regional headquarters, a substantial hike in the UK surcharge—say, reversing the previous cut back to eight percent or higher—widens the tax gap dramatically. Compared to Frankfurt, Paris, or Amsterdam, where corporate tax structures for financial services are increasingly stable, a higher London surcharge makes the UK market look far more punitive. Over time, this does not necessarily lead to sudden, dramatic departures, but it quietly drives multinational banks to allocate capital, high-value desks, and future hiring to their EU subsidiaries rather than expanding their London footprints.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

Over the next two years, I expect cooperation to grow quite significantly in practical, technical sectors where both sides share an immediate, mutual interest. The obvious area is energy security and the green transition, particularly around linking carbon pricing systems and managing North Sea electricity grids, where closer alignment helps lower costs for everyone. We'll also see progress in security and defense industrial cooperation, as the conflict in the Middle East forces a more pragmatic, coordinated approach to supply chains and joint procurement, even outside formal EU structures. On the other hand, I expect cooperation to stall completely when it comes to the core pillars of the single market, specifically the free movement of people and services. The EU remains fiercely protective of the indivisibility of its four freedoms, and Prime Minister Andy Burnham’s administration has domestic political limits that prevent any return to free movement. Any British attempts to negotiate "cherry-picked" access for services, especially financial services, will run straight into a brick wall in Brussels, keeping that side of the relationship firmly frozen.

What would the EU want from the UK in return for closer cooperation?

The European Commission is incredibly consistent on this point: they will not allow the UK to "cherry-pick" the benefits of the single market without accepting the corresponding obligations. If Prime Minister Andy Burnham wants to make progress on the things the UK desperately desires—like a veterinary and sanitary agreement to cut agrifood red tape, or fully linking our emissions trading systems—the EU will demand very specific, tangible concessions in return. First and foremost, Brussels will insist on a reciprocal Youth Experience Scheme. The EU wants to ensure young European citizens can easily live, work, and study in the UK, which has been a major point of contention given the UK's domestic political sensitivity around immigration. Furthermore, on regulatory issues like carbon pricing and energy markets, the EU will demand "dynamic alignment". This means the UK would have to automatically adopt relevant EU rules and standards as they evolve, and likely accept the oversight of European judicial bodies to resolve disputes. Brussels is also pushing the UK to align with its broader trade protections, such as imposing tariffs on Chinese electric vehicles to prevent the UK from becoming a backdoor for cheap imports into the single market. Essentially, closer cooperation will always come with a price tag of shared rules, shared costs, and compromise on regulatory sovereignty.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

When Andy Burnham took over as Prime Minister in July, it definitely shifted the atmosphere in Brussels. Initially, there was a fair amount of fatigue here because the UK had just changed its leader yet again, raising the familiar European anxieties about British political volatility. But once the dust settled, the perception became much more focused on Burnham’s specific political brand. Brussels sees him as a highly pragmatic, regional pragmatist—the former "King of the North" who is deeply focused on domestic delivery and public services. Because of this, the Commission expects him to approach EU relations through a very practical, transactional lens rather than getting bogged down in grand, ideological statements. He isn't trying to sell a dramatic "rejoin" fantasy, which Brussels doesn't want to litigate anyway; instead, he's looking for concrete, piecemeal alignments on things like energy, carbon markets, and trade standards that directly benefit his domestic agenda. The upcoming bilateral summit in November is being watched closely here as the first real test of whether this businesslike, step-by-step approach can actually deliver results.

What risk in this Budget is London not taking seriously enough?

The risk that London is simply not taking seriously enough is the structural impact of persistent, higher inflation on their overall fiscal arithmetic. The data tell a more nuanced story than the optimistic talk of "staying the course" and maintaining a "scorecard positive" budget through targeted tax tweaks or departmental reprioritization. While Chancellor John Healey is trying to absorb the immediate economic shock of the Iran war by letting his fiscal headroom shrink—potentially halving it to around fourteen billion pounds—the broader issue is how higher inflation and soaring gilt yields are quietly eating away at the UK's long-term spending plans. With ten-year gilt yields sitting stubbornly high, the cost of servicing Britain’s massive national debt is rising rapidly, at the exact same time that inflation is automatically pushing up the cost of welfare payments and public services. By ordering departments to find savings within existing budgets to pay for Prime Minister Andy Burnham’s early promises, the Treasury is hoping that flat cash limits will suffice. In reality, unless they explicitly account for these massive inflationary pressures, they are locking themselves into deep, unacknowledged real-terms cuts to public services and defense. It makes the entire medium-term fiscal plan risk looking like a work of fiction, because you cannot simply squeeze departmental budgets indefinitely in a high-inflation, high-interest-rate environment without something vital breaking.

From where you sit, what would a good Budget on 28 October look like?

From a macroeconomic perspective, a good Budget on October 28th would be one that successfully restores fiscal credibility and confronts the reality of structural inflation head-on. First and foremost, it must present a truly transparent medium-term plan that does not rely on overly optimistic growth assumptions to balance the books. If Chancellor John Healey delivers a package that is genuinely "scorecard positive" by funding new public services and the Prime Minister's early pledges through concrete, permanent tax rises or clear departmental reprioritization—rather than taking on more debt—it will send a reassuring signal to both bond markets and European onlookers. Additionally, a strong Budget would need to explicitly address the massive spending pressures identified by institutions like the Institute for Fiscal Studies, showing exactly how the Treasury will absorb the economic shock of the Iran war without resorting to hidden, unsustainable real-terms cuts to public services. For those of us looking at the UK from the outside, a successful fiscal package is one that replaces short-term political expedience with rigorous, predictable planning that stabilizes gilt yields and creates a reliable foundation for future European cooperation.

If you could give the Chancellor one sentence of advice, what would it be?

The data tell a more nuanced story than political promises, so you must prioritize absolute fiscal transparency over optimistic growth forecasts if you want to restore market confidence and stabilize gilt yields.

When you think about the UK today, what is the first issue that comes to mind?

The absolute first thing that comes to mind is regulatory divergence and the mounting cost of red tape for our companies. Every single day that the EU and the UK drift apart on technical standards, chemicals, or carbon pricing, it adds a direct financial burden onto integrated supply chains. That is why we are pushing so hard for concrete, pragmatic solutions like a solid Sanitary and Phytosanitary Agreement and linking our Emissions Trading Schemes. If we do not address these barriers, our businesses will continue to lose their competitive edge on the global stage.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

It will be read as a highly necessary, pragmatic step toward restoring macroeconomic credibility. In Brussels, we are watching the fallout of the Middle East conflict very closely, and we see how soaring energy costs and rising interest rates are squeezing public finances across Europe. If the Chancellor tries to borrow his way out of this pressure, it will only spook the bond markets and drive up borrowing costs further, which is a massive risk to economic stability. By choosing to fund new measures through tax rises or spending cuts rather than piling on more debt, the UK is sending a clear signal of fiscal discipline that aligns with the IMF's latest recommendations. However, the hard truth is that this approach leaves virtually no room for maneuver, and it means the UK will have to make some extremely painful trade-offs to meet its long-term goals, including its defence commitments.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

It reinforces my deepest concerns about the UK's macroeconomic stability and the sheer scale of the fiscal squeeze they are facing. When sovereign borrowing costs spike like this, it acts as a massive gravitational pull on the entire economy, driving up capital costs for businesses and pushing mortgage rates higher for consumers. This market reaction is essentially a heavy credibility premium being charged by investors who are highly anxious about inflation and the upcoming Budget. It proves my point that the government has absolutely zero fiscal room to maneuver, and any plans for major new spending—whether on industrial subsidies or hitting that three percent defence target—will be incredibly difficult to pull off without triggering further market turmoil.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

A higher surcharge on bank profits would absolutely tilt the playing field, making London significantly less competitive compared to EU hubs. If you look at the total tax rate paid by banks, the UK is already at the top of the scale among major financial centres. If the Chancellor decides to hike the surcharge further, it will widen the gap with cities like Frankfurt, Dublin, or Amsterdam, where the tax burden on lenders is notably lower. For a concrete example, look at a global institution like JPMorgan Chase. Their leadership has already warned that a more hostile tax regime could force them to reconsider massive capital investments in London, such as their planned multi-billion pound headquarters. If the tax burden becomes too penalising, these institutions will simply allocate their capital, high-value desks, and talent to their European hubs inside the Single Market instead.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

I expect we will see genuine, practical progress in areas where both sides have a massive, shared commercial and strategic interest, particularly around linking our Emissions Trading Systems and finalising the Sanitary and Phytosanitary Agreement. There is a very clear, mutual realization that reducing food trade bureaucracy and aligning carbon pricing is vital for our mutual competitiveness. Where things are highly likely to stall, however, is on any sweeping, wholesale renegotiation of the Trade and Cooperation Agreement itself. The EU is incredibly protective of the Single Market's integrity, so if the UK tries to cherry-pick benefits or push for broad regulatory access without accepting the corresponding obligations, those talks will hit a brick wall. Furthermore, any progress on services or professional qualifications is going to remain extremely difficult and slow-moving, as those sectors touch on highly sensitive domestic political issues.

What would the EU want from the UK in return for closer cooperation?

The EU is going to want clear, concrete reciprocity and a firm commitment to playing by the rules. We are not in the business of letting anyone cherry-pick the benefits of the Single Market without taking on the responsibilities. If the UK wants smoother trade in goods through a veterinary or SPS agreement, they will have to agree to dynamic alignment with our rules and accept the oversight that comes with it. Beyond regulatory alignment, the EU has some very specific demands on the table. We want a balanced Youth Experience Scheme to restore mobility for young people, a fair financial contribution if they want to participate in European programmes, and full, faithful implementation of our existing agreements like the Windsor Framework. Essentially, if you want access to our market and closer cooperation, you have to prove you are a reliable partner who plays by the same rules and pays your fair share.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

The arrival of Andy Burnham in Downing Street has definitely injected a new sense of urgency and ambition into how Brussels views the UK. For the first time since the referendum, we have a British Prime Minister who is willing to openly call the status quo inadequate and push past some of the rigid red lines we saw under Keir Starmer. The fact that he is framing the upcoming November summit as a major reset—and is even willing to talk about a long-term dialogue on deeper integration—has caught everyone's attention here. But while the change in tone is very welcome, Brussels remains extremely pragmatic. We see the domestic political tightrope he has to walk, and the message from our side has not changed: any closer economic relationship, whether it is on food standards, emissions, or youth mobility, still requires the UK to accept the corresponding rules and obligations. The willingness to talk is a great start, but in Brussels, we judge partners on the concrete commitments they are actually prepared to sign up to.

What risk in this Budget is London not taking seriously enough?

The risk they are simply not taking seriously enough is the complete evaporation of their fiscal cushion, and the very real danger that their spending plans will be viewed by the markets as a work of fiction. With 10-year gilt yields breaking past five percent, the massive spike in borrowing costs and rising inflation have already eaten away about half of the headroom the Treasury thought it had. Yet, there is a dangerous complacency in London that they can just rely on accounting tricks, like using technical offsets for public asset spending, or simply pushing the hard decisions on departmental cuts down the road to next year's Spending Review. If the Chancellor tries to present a budget that relies on these empty assumptions without clearly spelling out how he will cover tens of billions in spending pressures, the markets will see right through it. In the current highly volatile global environment, running with an incredibly thin fiscal cushion leaves the UK dangerously exposed to the next macroeconomic shock, and that is a gamble they cannot afford to lose.

From where you sit, what would a good Budget on 28 October look like?

From where I sit, a good Budget on 28 October would be one that prioritises absolute economic realism over political ambition. We need to see a plan that firmly commits to fiscal discipline, paying for any new measures through solid tax revenues or spending cuts rather than more borrowing. For businesses, a good Budget must provide a predictable, stable tax environment that does not punish capital investment or raise corporate costs, especially while our companies are dealing with the fallout of the energy crisis and high interest rates. If John Healey can deliver a fully funded package that satisfies the markets, keeps inflation under control, and avoids the temptation of fiscal accounting tricks, it will go a long way toward restoring the UK’s economic credibility in the eyes of European partners.

If you could give the Chancellor one sentence of advice, what would it be?

If you want to restore market confidence and build a strong foundation for future growth, you must resist the temptation of fiscal accounting tricks and deliver a fully funded, transparent budget that protects business investment.

When you think about the UK today, what is the first issue that comes to mind?

When I think about the UK right now, the first issue that comes to mind is regulatory divergence in financial services. Now that they're pursuing their own path to boost their domestic competitiveness, we're seeing them move away from established EU rules on things like prospectuses, short selling, and retail disclosures. From my desk at DG FISMA, our absolute priority is Single Market integrity and financial stability. So, while we maintain a structured dialogue with our counterparts in London, we have to constantly monitor how their reforms impact our own markets and ensure we don't end up with destabilizing gaps in supervision.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

If Chancellor John Healey funds these new measures through tax rises or spending cuts rather than increasing borrowing, it'll be read in Brussels as a very clear sign of fiscal discipline. Given the economic pressures from the war in Iran and the resulting inflation, showing a commitment to meeting self-imposed fiscal rules and keeping debt under control is exactly what international observers want to see right now. In fact, it aligns closely with what the IMF has been urging, which is to stay the course on deficit reduction rather than taking on more debt. For us at the Commission, and especially from my perspective at DG FISMA, a fiscally responsible UK budget is good news because it helps preserve market stability right on our border. When a major financial partner prioritizes stability over easy borrowing, it reduces the risk of market volatility spilling over into the Single Market, which is always our primary concern.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

It reinforces the absolute necessity of fiscal credibility and stability. While these rising yields are partly driven by global factors like oil price shocks and inflation pressures from the Middle East, they also show that markets are pricing in a significant fiscal risk premium for the UK specifically. For us in Brussels, it highlights how quickly market sentiment can turn when investors become anxious about debt levels and inflation. It makes it even more vital that the upcoming budget delivers a highly disciplined and credible plan to manage borrowing. If they fail to reassure the markets, the resulting volatility won't just squeeze UK households and public finances, but it could easily create spillover risks that we have to be ready to manage here in the Union.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

A higher UK bank surcharge would absolutely shift the competitive dynamics between London and European hubs. Right now, banks in London already face a significantly higher total tax rate than their competitors in Amsterdam, Frankfurt, or Dublin. If the Chancellor decides to push the surcharge up, that tax gap widens even further. For example, a global investment bank looking to expand its European headquarters or build out a major new division will look closely at the bottom line. If the tax burden in London becomes too heavy, it makes hubs like Frankfurt, which are actively working to attract this business, look much more attractive for new capital and jobs. Ultimately, capital is highly mobile, and a higher surcharge simply hands EU financial centers a stronger hand in drawing operations away from the UK.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

Over the next two years, I expect cooperation to grow in areas of shared structural necessity where both sides gain from coordination. A clear example is operational financial infrastructure, such as our joint work on the transition to the T+1 settlement cycle, and our structured dialogues through the Joint EU-UK Financial Regulatory Forum. We also see progress on broader strategic issues where our borders overlap, like energy market links, maritime security, and the UK rejoining the Erasmus+ program. On the other hand, cooperation will almost certainly stall when it comes to deeper regulatory alignment in financial services. The UK is determined to forge its own path with domestic reforms, such as their new prospectus regime, while we are focused on our own Market Integration and Supervision Package under the Savings and Investments Union. Neither side is going to compromise its regulatory autonomy, so while we will talk and share information, any hopes of mutual recognition or broad equivalence are going to remain firmly on ice.

What would the EU want from the UK in return for closer cooperation?

It comes down to a fundamental commitment to regulatory stability and playing by the agreed rules of the game. If the UK wants closer cooperation or better access to our markets, we need to see a clear willingness to respect the integrity of the Single Market and prevent any form of regulatory arbitrage. We can't have a situation where a partner enjoys the benefits of close cooperation while actively undercutting our standards right on our doorstep. That means respecting level playing field commitments on everything from environmental standards to state aid, and ensuring their financial regulations don't create backdoors that threaten our financial stability. Ultimately, any closer relationship has to be built on mutual trust, and that trust is earned through consistent, predictable alignment with international standards and bilateral agreements.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

The transition in July, with Andy Burnham taking over as Prime Minister, has certainly brought a fresh dynamic to how we view our relationship. While Keir Starmer laid some of the groundwork, there is a distinct sense in Brussels that Burnham is bringing a much more active, direct approach to renegotiating and repairing parts of the post-Brexit relationship. His clear signal that he wants a serious, structured dialogue with the EU on economic growth, emissions trading, and reducing bureaucracy is being watched closely. We see it as a pragmatic opening, and his upcoming bilateral summit next month is a highly anticipated step. At the same time, Brussels remains Brussels. While we welcome a prime minister who wants to reverse some of the post-Brexit economic damage and build stronger ties, our core priorities do not change. Any closer cooperation will still be weighed strictly against our need to protect the integrity of the Single Market and ensure there is no cherry-picking of benefits.

What risk in this Budget is London not taking seriously enough?

From where I sit, the risk that London is not taking seriously enough is the compounding effect of cumulative taxation on their financial sector's global competitiveness. Between potential windfall taxes, a higher bank surcharge, and reforms to capital gains and carried interest, there seems to be a belief in the Treasury that the City of London can be treated as a reliable revenue source without consequence. But capital and high-level talent are incredibly mobile. If John Healey pushes the tax burden too far in this budget, he risks driving key business and investment straight into the hands of European financial centers that are more than ready to welcome them. It is a delicate balance, and ignoring that competitive erosion is a very dangerous gamble.

From where you sit, what would a good Budget on 28 October look like?

From my perspective at DG FISMA, a good Budget on October 28 would be one that prioritizes absolute fiscal discipline and restores market confidence. With gilt yields sitting at exceptionally high levels and the global economy facing severe inflation and energy pressures from the conflict in Iran, there's zero room for fiscal adventures. A strong Budget from Chancellor John Healey would show a clear commitment to funding any new public spending through tax adjustments or savings rather than turning to further borrowing. If the Treasury delivers a highly responsible, balanced plan that protects their fiscal headroom, it'll go a long way in settling the bond markets, bringing down borrowing costs, and ensuring that financial instability doesn't spill across the Channel into our own markets.

If you could give the Chancellor one sentence of advice, what would it be?

Prioritize absolute fiscal discipline in your upcoming budget to stabilize the bond markets, because any domestic market volatility in London will quickly ripple across the Channel and strain our shared financial systems.

When you think about the UK today, what is the first issue that comes to mind?

When we look at the UK right now, the primary issue is how we manage the path forward regarding our trading and economic relationship. With Prime Minister Andy Burnham calling for a serious dialogue and a bilateral summit scheduled for next month, we are looking closely at how to address very practical, structural economic questions. This means assessing the viability of agreements on regulatory alignment, such as sanitary and phytosanitary rules for agrifood, and potentially linking our emissions trading systems. From our perspective in Brussels, any new arrangement must preserve the integrity of the Single Market while finding pragmatic ways to support the competitiveness of European firms.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

A commitment to fully funding new initiatives through tax revenues or expenditure offsets rather than relying on expanded borrowing will be received very positively in Brussels. In our analytical frameworks at DG ECFIN, fiscal discipline is the absolute cornerstone of macroeconomic stability. When a sovereign debt level is already elevated, choosing to absorb new priorities—including necessary cost-of-living support or defense pressures—within a "scorecard positive" framework demonstrates a serious commitment to long-term structural consolidation. It signals that the UK Treasury is prioritizing stability and seeking to rebuild its fiscal headroom rather than risking further market volatility, which is precisely the kind of predictability we value in our economic partners.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

The current surge in gilt yields is a very clear signal from the markets, and it naturally reinforces our cautious perspective on the UK’s macroeconomic position. While some of this pressure is driven by global factors—particularly the energy shocks resulting from the conflict with Iran—it is evident that investors are demanding a significant fiscal-risk premium on UK debt. This rising cost of borrowing severely constrains the Chancellor’s fiscal headroom just as they are preparing the upcoming Budget. For us in Brussels, this volatility underscores the absolute necessity of structural fiscal discipline. If the UK intends to fund ambitious new initiatives, such as the three percent defense target, doing so through increased borrowing is simply no longer a viable option under these market conditions. It makes a transparent, fully funded fiscal plan in the Budget more critical than ever to restore market confidence and stabilize long-term borrowing costs.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

A higher surcharge on bank profits would certainly impact the competitive balance, as financial institutions are highly sensitive to the total tax rate of the jurisdictions where they deploy capital. Currently, when you combine the standard UK corporation tax, the existing bank surcharge, and the balance-sheet levy, London's modeled banking tax rate is already around forty-six percent, which is noticeably higher than competing hubs like Frankfurt, Amsterdam, or Dublin. If the Chancellor decides to increase the surcharge further, it widens this fiscal gap significantly. For a concrete example, we can look at how international banking groups allocate their trading desks and regional headquarters. If a major global entity is deciding where to base a new European investment team or a capital-intensive trading operation, a much higher tax burden in the UK makes EU hubs look far more attractive. We have already seen senior executives from major global institutions openly state that further tax hikes could prompt them to redirect investments away from London and shift those resources to their continental entities. For EU financial centers, this shift of capital and high-value operations would naturally strengthen our own financial ecosystem at London's expense.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

Over the next two years, we can expect to see concrete progress and growth in cooperation in a few specific, technical areas where negotiations are already well-advanced. The linkage of our respective Emissions Trading Schemes is moving in a very positive direction, which will bring mutual benefits to businesses managing carbon border adjustments. We are also on track to finalize the UK's association to the Erasmus+ student exchange program for 2027, and there is solid momentum toward a veterinary and agrifood agreement to reduce friction for food and drink exports. These are practical, mutually beneficial arrangements that fit neatly within our existing legal frameworks. On the other hand, cooperation is likely to stall or face severe friction when it comes to deeper structural integration and services. The UK’s attempt to join our flagship defense financing initiative, the Security Action for Europe programme, has already run into major obstacles due to disagreements over the scale of the financial contribution. Furthermore, while the political debate in London has recently opened up to discussing grander concepts like a customs union or single market participation, any actual progress on those fronts will stall. From our perspective in Brussels, we cannot allow cherry-picking of the Single Market, and the complex regulatory alignment required for such arrangements means that any high-level political rhetoric will inevitably grind to a halt when it meets the reality of detailed, technical negotiations.

What would the EU want from the UK in return for closer cooperation?

To put it in basic terms, the Union always expects balance, reciprocity, and a commitment to shared rules. We can't have a situation where a third country enjoys the structural benefits of our market or our programs without accepting the associated obligations and financial contributions. For example, if the UK wants its defense firms to have deep access to our joint procurement initiatives, they must be willing to pay an appropriate entry fee and accept our regulatory standards, rather than expecting a bespoke arrangement that undermines our own member states. Ultimately, closer cooperation requires a shared understanding that access to the European ecosystem comes with a responsibility to uphold its integrity and contribute fairly to its upkeep.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

The transition to Andy Burnham in July has certainly brought a noticeable shift in tone and a renewed sense of pragmatic engagement, which we welcome. After a period of relative stagnation, his administration has shown a clear appetite for structured, realistic dialogue rather than seeking ideological victories. We see this change reflected directly in the preparations for the upcoming bilateral summit next month. There is an appreciation in Brussels for his focus on practical, concrete steps—like addressing regulatory alignment and emissions trading—which aligns far better with our own institutional preference for orderly, step-by-step progress over sweeping political rhetoric.

What risk in this Budget is London not taking seriously enough?

The risk that is not being taken seriously enough in London is the severe erosion of the real-term spending power of their public services due to the current inflation shock. While the Treasury is highly focused on calculating its immediate fiscal headroom and avoiding a direct market backlash, the war in the Middle East has pushed up energy prices and driven inflation higher. According to our assessments, if the Chancellor tries to stick to the nominal departmental spending limits set earlier this year without adjusting them for this new inflationary reality, it will implicitly force massive, real-terms cuts to the quality of public services. Trying to absorb this inflation hit while simultaneously aiming to scale up defense commitments, without a realistic, multi-year plan to cover the resulting thirty-five billion pound funding pressure, risks turning the Budget's medium-term projections into a work of fiction.

From where you sit, what would a good Budget on 28 October look like?

A good Budget from Chancellor John Healey would be one that resolutely prioritizes long-term fiscal credibility over short-term political gains. With public debt exceedingly high and gilt yields signaling severe market sensitivity, we want to see a framework that strictly adheres to the UK's fiscal rules. Practically, this means any new cost-of-living supports or regional development spending must be fully offset by transparent, sustainable revenue-raising measures. Rather than relying on optimistic growth assumptions, a robust Budget would show exactly how the Treasury plans to rebuild its fiscal headroom and absorb the massive inflationary pressures currently squeezing public services. Ultimately, a budget that delivers stability, predictability, and realistic, funded plans is what will reassure partners here in Brussels and stabilize the markets.

If you could give the Chancellor one sentence of advice, what would it be?

Prioritize structural fiscal discipline over political expediency by ensuring every new commitment is fully funded through transparent revenue measures, as market confidence once lost is exceedingly difficult to rebuild.

When you think about the UK today, what is the first issue that comes to mind?

When I think about the UK today, the first thing that comes to mind is the absolute necessity of a "common sense" reset in our trade relationship. Ten years on from the referendum, the damage of the previous botched agreements on the daily lives and living standards of working people is incredibly clear. What we need right now are concrete, "jobs first" sectoral agreements, starting specifically with highly integrated areas like chemicals and pharmaceuticals. If we can align on these standards, we can finally strip away the mountain of red tape and border friction that currently threatens workers' wages and job security on both sides of the Channel.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

This decision will be read with a mix of relief and deep concern here in Brussels. On one hand, the European Commission and the financial institutions will see this as a highly responsible, mature move to maintain fiscal discipline, especially as we navigate the economic shocks of the war in the Middle East. Demonstrating that you will not fund your promises on a mountain of unsustainable debt is exactly the kind of stability Brussels wants to see from a major partner. On the other hand, from a labor and social perspective, we are deeply worried about what this actually means on the ground. If the Chancellor relies heavily on spending cuts to meet these targets, it will mean further strangling the public services, transport, and green transition investments that working families desperately need. We cannot build a strong, collaborative relationship with a UK whose domestic social fabric is being continuously eroded by austerity.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

This dramatic spike in gilt yields is a deeply worrying signal, and it strongly reinforces my view that the UK is operating in an incredibly fragile economic environment. When borrowing costs reach heights we haven't seen since the 2007 financial crisis, it tells us that international markets are demanding a massive risk premium just to hold British debt. For the labor movement and our work here in Brussels, this is a flashing red light. High yields mean the government's cost of servicing its existing debt is skyrocketing, which severely shrinks the fiscal space the Chancellor has for the upcoming budget. My immediate fear is that this market pressure will push the government into panic mode, leading them to abandon crucial, long-term investments in public infrastructure, green industries, and social protections in a desperate bid to calm the bond markets. It makes the prospect of a stable, investment-led recovery much harder to achieve and increases the risk of further public sector cuts that working families simply cannot bear.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

A higher surcharge would definitely shift the competitive dynamic, but we need to look at this through the lens of tax justice rather than just buy into the usual industry panic. Right now, banks operating in London face a total tax rate of over forty-six percent, which is already notably higher than what they would pay in Amsterdam, Frankfurt, or Dublin. If the Chancellor reverses the previous cuts and pushes the surcharge back up, it will certainly sharpen the rivalry with those continental hubs. For example, if we saw the surcharge return to its previous eight percent, or even higher, a major multinational like HSBC, which has huge global mobility, might decide to shift more of its capital, bookings, or future headquarters investment away from London and directly into EU centers like Paris or Frankfurt where the overall tax environment is more predictable. However, we must remember that banks have been raking in massive, record-breaking profits recently due to high interest rates. From a labor perspective, raising this tax is a perfectly reasonable way to make sure the financial sector contributes its fair share to funding public services and the green transition, rather than letting those booming profits sit untaxed while public infrastructure crumbles.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

Over the next two years, I fully expect us to see some genuine, practical growth in cooperation when it comes to energy and climate policy. The geopolitical reality of our energy security has made closer integration an absolute necessity, and we are already seeing some very promising momentum toward a dedicated electricity agreement and linking our emissions trading systems. This is incredibly important for avoiding unnecessary carbon border taxes and building a more resilient, green power grid across the North Sea. On the other hand, I expect things to stall quite heavily when we get into the nitty-gritty of regulatory alignment for trade and broader worker mobility. The EU is incredibly protective of the integrity of the single market and will resist anything that looks like "cherry-picking". If the UK government continues to shy away from binding commitments on labor standards and dynamic alignment with EU rules, then trying to negotiate those deep, frictionless "jobs first" sectoral agreements in complex areas like chemicals or agrifood is going to hit a very solid brick wall.

What would the EU want from the UK in return for closer cooperation?

The equation for Brussels is very straightforward: if you want access, you must accept the rules. First and foremost, the EU will demand dynamic alignment with our regulatory standards, particularly on the level playing field covering labor, environmental protections, and state aid. We cannot have a situation where the UK enjoys frictionless access to our markets while systematically undercutting our workers' rights or environmental regulations. Beyond that, the EU has clear offensive interests of its own, such as securing a comprehensive, reciprocal youth mobility scheme to allow young people to live and study across borders, and ensuring long-term, stable agreements on fisheries. Closer cooperation is not a menu where you can cherry-pick the benefits; it requires a balanced commitment to shared responsibilities and binding dispute mechanisms to protect the integrity of the Single Market.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

The arrival of Andy Burnham in Downing Street this past July has definitely injected a very different energy into our discussions here in Brussels. With Keir Starmer, there was always a feeling that the UK was walking on eggshells, desperately trying not to upset domestic red lines or re-open the old Brexit wounds. Burnham represents a real circuit-breaker. He is coming in with a much more pragmatic, devolution-focused mindset, and he has already been quite vocal about wanting to build a closer, more constructive relationship with the EU, which is a breath of fresh air for us. That said, Brussels is also watching with a healthy dose of caution. The UK is now on its seventh Prime Minister in a decade, and that level of political volatility naturally makes negotiators here a bit wary about whether any long-term commitments the UK makes will actually stick. We are incredibly keen to see what comes out of the upcoming UK-EU summit next month, but our focus remains on ensuring that any closer cooperation is built on solid, binding standards that protect workers' rights and the level playing field.

What risk in this Budget is London not taking seriously enough?

The absolute biggest risk that London is not taking seriously enough right now is the sheer volatility of the bond markets and the highly precarious state of their fiscal headroom. With thirty-year gilt yields breaching six percent, the cost of servicing Britain's existing debt is quietly eating away at the Treasury's ability to actually fund anything. The government seems to think they can just put off the hard decisions, deliver a low-key statement, and reassure the markets with vague promises of future savings. But if they try to gloss over this with shaky assumptions, or if they fail to show a credible, long-term plan to pay for their commitments, the market reaction could be incredibly swift and severe. We are skating on exceptionally thin ice, and ignoring that underlying structural fragility to chase short-term political wins is a massive gamble.

From where you sit, what would a good Budget on 28 October look like?

From where I sit, a good Budget on 28 October would be one that rejects the false promise of austerity and instead prioritizes deep, long-term capital investment. John Healey faces an incredibly difficult balancing act, especially with those high gilt yields squeezing his room to maneuver. But a truly successful fiscal plan cannot simply be about cutting spending or raising regressive taxes to calm the markets. It needs to focus heavily on protecting public services, boosting green transition infrastructure, and establishing a fair tax system—perhaps by making multinational platforms and big tech pay their actual fair share—so that we can build a strong, sustainable economic foundation that benefits working people.

If you could give the Chancellor one sentence of advice, what would it be?

Do not sacrifice the long-term industrial and green transition investments that will actually rebuild the UK’s economic base just to satisfy short-term bond market panic or defense lobby pressures.

When you think about the UK today, what is the first issue that comes to mind?

When I look at the UK today, the first thing that comes to mind is our shared security and economic alignment, especially as we approach the upcoming UK-EU summit in Brussels next month. Prime Minister Andy Burnham has been pushing to explore a closer partnership, which is a significant shift in tone that we must analyze with both openness and extreme budgetary and regulatory caution. For me, any discussion about closer integration—whether it is on energy markets, emissions trading, or defense—must be weighed against strict standards of reciprocity, administrative simplification, and the protection of our single market. We cannot afford to rush into agreements that compromise our strategic autonomy or create complex, inefficient administrative burdens for our member states.

The Chancellor is reported to be paying for new measures through tax rises or spending cuts, not more borrowing. How will that be read in Brussels?

If the Chancellor indeed commits to funding new measures strictly through tax rises or spending cuts rather than accumulating more debt, it'll be read in Brussels as a very welcome signal of fiscal responsibility. After seeing UK borrowing costs and gilt yields rise to rather uncomfortable levels recently, there's a strong desire on our side of the Channel to see our neighbors restore a solid buffer of fiscal headroom. By prioritizing fiscal discipline over easy borrowing, the UK aligns itself much more closely with the kind of budgetary stability we value within the European Union. It shows they're serious about balancing their day-to-day spending, which is precisely the kind of predictable, steady-handed governance we need in a strategic partner.

UK gilt yields are at their highest level since 2007. How does that affect your view of the UK?

These soaring gilt yields are a stark reminder of the harsh economic reality the UK is facing, and they certainly reinforce my caution. When borrowing costs reach levels we haven't seen in nearly two decades, it tells us that the markets are pricing in a significant fiscal risk premium. From my perspective, this makes the UK's ambitious spending promises—especially on defense—look even more fragile. It is hard to see how they can comfortably fund massive new strategic commitments when their debt servicing is becoming so expensive. It proves that the UK cannot rely on easy borrowing to solve its problems; they are going to have to make some incredibly tough choices on taxes and spending if they want to restore confidence and stabilize their public finances.

Would a higher UK surcharge on bank profits change the competition between London and EU financial centres? Give a specific example.

Yes, a higher surcharge would definitely shift the competitive dynamic, making EU financial hubs look increasingly attractive. London is already grappling with post-Brexit market access issues, and imposing a heavier tax burden on top of that would be a significant disincentive for international investment. For example, if you look at the total tax rate for banks, the UK already sits at over 46%. If the Chancellor decides to push the bank surcharge back up to raise revenue, it would widen the gap with EU centers like Frankfurt, where the total rate is closer to 39%, or Amsterdam. We have already seen major executives warn that they might rethink long-term capital deployments or scale back infrastructure projects in London if the tax environment becomes too hostile. While we want to see the UK stabilize its public finances, pushing their tax rates too high will simply drive international commercial operations and capital straight into the waiting arms of continental European hubs.

Over the next two years, where do you expect cooperation between the UK and the EU to grow, and where do you expect it to stall?

I expect we'll see genuine, constructive growth in areas of mutual strategic necessity, starting with energy cooperation and security. We are already making progress on linking our emissions trading systems and integrating the UK back into our internal electricity market, which is vital for stabilizing prices and securing our grid infrastructure. We will also see deeper collaboration on security and defense procurement through frameworks like our new Security and Defence Partnership, as the geopolitical reality forces us to coordinate much more closely on external threats. Where things are highly likely to stall, however, is on any file that touches the free movement of people or requires complex dynamic alignment with EU rules. Negotiations on a broad youth mobility scheme are already proving incredibly difficult because of political sensitivities on both sides. Likewise, any UK hopes for a sweeping agreement on the mutual recognition of professional qualifications or an easy sanitary and phytosanitary deal for agrifood will likely hit a brick wall. Brussels will not compromise the integrity of the single market or ease regulatory standards, meaning those more ambitious economic resets will face severe administrative and political resistance.

What would the EU want from the UK in return for closer cooperation?

For the EU, the fundamental principle is very clear: there is absolutely no room for "cherry-picking". If the UK wants closer cooperation on things like agrifood trade, emissions trading, or energy markets, we will demand full, dynamic alignment with our regulatory standards in those specific areas. We also expect a fair financial contribution to the EU budget for participating in our programs, alongside a clear role for European governance and legal oversight. Finally, we want reciprocity, particularly on mobility, which is why a comprehensive youth mobility scheme remains a key priority for us in these ongoing negotiations.

How has the change of Prime Minister in July changed the way Brussels sees the UK?

The transition in July to Prime Minister Andy Burnham has certainly shifted the diplomatic climate, but it has also reinforced our need for structural caution. On one hand, we welcome his willingness to engage in a more constructive, serious dialogue about our long-term ties, and his confirmation that he will attend the bilateral summit in Brussels next month is a positive sign. There is a clear opening to address shared practical problems, such as reducing administrative barriers on food exports, integrating emissions trading, and cooperating on energy and migration. On the other hand, the fact that he is the UK's seventh prime minister in a single decade does not go unnoticed in Brussels, and it naturally raises questions about long-term political stability. While his rhetoric about reversing some post-Brexit economic damage is promising, our position remains entirely unchanged. We are ready to work with his government to find efficient, simplified solutions, but we will not allow any renegotiation to weaken the rules of our single market or compromise our regulatory autonomy.

What risk in this Budget is London not taking seriously enough?

The single biggest risk that London is not taking seriously enough is the severe erosion of their fiscal headroom and the volatility of the bond market. With the ongoing war in the Middle East pushing up energy prices and driving inflation, borrowing costs have skyrocketed, with thirty-year gilt yields hovering around six percent. This has effectively sliced their fiscal headroom in half, down to a razor-thin eleven or twelve billion pounds. Yet, we hear reports that the Treasury is considering deliberately running with an even smaller buffer to avoid politically painful tax decisions. On margins this fine, even a minor economic shock or a prolonged disruption in the Strait of Hormuz could wipe out that headroom entirely, throwing their budget into deficit and destroying market confidence. Operating with virtually no margin for error while pretending you can still fund massive public service demands and defense commitments is a very dangerous gamble that could easily backfire.

From where you sit, what would a good Budget on 28 October look like?

From where I sit, a good budget from Chancellor John Healey on October 28 would be one that ruthlessly prioritizes long-term fiscal discipline over short-term political gestures. First and foremost, it must show a clear, fully funded plan to restore the UK's shrinking fiscal headroom, which has been severely eroded by the surge in borrowing costs driven by the war in Iran. A solid budget would avoid the temptation of creative accounting or piling on more debt, choosing instead to address deficits through structured, transparent measures. At the same time, we need to see concrete funding allocations for their strategic commitments—particularly on defense—rather than vague promises of future cuts. For us in Brussels, a good budget is one that brings predictability, stabilizes gilt yields, and proves the UK is serious about maintaining a robust fiscal buffer to navigate these highly unstable global times.

If you could give the Chancellor one sentence of advice, what would it be?

Stop chasing unrealistic spending targets on borrowed money and focus on building a transparent, fully funded budget that restores your fiscal headroom and market confidence.