UK Chancellor John Healey has unveiled his first Budget, promising financial relief for households and businesses while maintaining the Government’s fiscal rules and increasing taxes on banks.
The package includes a £100 energy payment for households in council tax bands A to D, a continued freeze on fuel duty and measures aimed at reducing energy costs. However, the support comes as the overall tax burden is projected to reach a record high, with frozen income tax thresholds expected to increase the amount workers pay over time.
The Chancellor said the Budget was designed to provide immediate assistance with living costs while addressing longer-term economic challenges, including rising energy prices linked to conflicts in the Middle East.
Frozen Tax Thresholds Increase Revenue Forecasts
The Office for Budget Responsibility (OBR) expects income tax and National Insurance receipts to be £17.4 billion higher annually by 2030–31 than it forecast in March.
The increase is projected despite pressure on living standards, with frozen tax thresholds continuing to draw more people into higher tax payments as incomes change.
The tax burden is expected to rise to a record proportion of the UK economy. The Government has defended its approach as necessary to maintain public finances while funding its spending commitments.
Healey told MPs that fiscal discipline remained his first commitment as Chancellor and said the Budget met the Government’s stability and investment rules.
£100 Energy Payment for Eligible Households
Households in council tax bands A to D will receive a £100 payment to help with energy bills. The measure is expected to cost £2.6 billion.
The Government will also continue removing VAT from electricity bills until July. However, the expected 27 per cent increase in the energy price cap in the New Year could offset the savings for consumers.
Healey also signalled plans to reduce green levies on energy bills over the longer term and separate gas and electricity pricing arrangements.
Gas Standing Charges to Be Scrapped
The Chancellor announced plans to abolish standing charges on gas bills, following a campaign by consumer champion Martin Lewis, who was invited to Downing Street ahead of the Budget announcement.
The changes are not expected to take effect until at least next year. The charges, worth around £108 annually, will instead be incorporated into the unit price of gas.
As a result, households that use more gas could pay more under the new arrangement, while the impact will vary according to consumption.
Fuel Duty Freeze Extended Until July 2027
Motorists will avoid a scheduled increase in fuel duty, with the existing freeze extended until at least July 2027.
The measure is intended to ease costs for drivers amid continued pressure on household finances.
Part of the funding for the Budget will come from a temporary increase in the bank surcharge. The levy, currently set at 3 per cent on top of the 25 per cent corporation tax rate, will rise to 6 per cent for 15 months from January.
Benefits to Rise for 10 Million People
The Government has allocated £5.5 billion to increase benefits paid to approximately 10 million people by 3.5 per cent, in line with inflation.
Healey said two long-awaited welfare reviews would report next month. The Government has postponed introducing reforms until later in the parliamentary term.
He said the welfare bill would be reduced through measures consistent with Labour’s approach, following criticism of proposals for more extensive cuts.
Conservative leader Kemi Badenoch accused ministers of being “addicted to welfare”, while Andy Burnham has previously rejected what he described as “crude cuts”.
Official projections cited ahead of the Budget suggested sickness benefit spending could rise from £83 billion last year to £109 billion by the end of the decade.
Defence Spending Plan Receives Additional £4.7 Billion
The Government said the Defence Investment Plan would receive an additional £4.7 billion in funding. It also set a target of spending 3 per cent of gross domestic product on defence by 2030.
However, Healey deferred details of how the additional funding would be financed until next year’s Spending Review.
The defence announcement follows earlier debate over military spending and how the Government would fund its commitments.
Small Business Rate Relief and Gambling Taxes
Retail, hospitality and leisure businesses will benefit from an increase in the threshold for small business rate relief to £18,000.
The measure will be funded through tax increases on gambling, according to the Budget announcements.
The Government also plans to ensure business rates are retained locally by the end of the decade. Under the devolution arrangements associated with Burnham’s proposals, mayors are expected to receive 20 per cent of business rate revenue from next year.
Economic Growth Forecasts Revised
The OBR raised its forecast for UK economic growth this year from 1.1 per cent to 1.2 per cent.
However, its projection for the following year was reduced from 1.6 per cent to 1 per cent.
In his Budget address, Healey said the economy had shown signs of resilience, pointing to investment and productivity growth. He also noted that Britain recorded joint-fastest growth among G7 economies during the first half of the year.
The Chancellor said international uncertainty, including conflicts affecting energy prices, continued to place pressure on households, businesses and public finances.
Government Drops Planned Cash ISA Allowance Cut
The Government has abandoned plans to reduce the annual cash Individual Savings Account allowance from £20,000, following opposition to the proposal.
The planned reduction had been associated with Rachel Reeves’ earlier proposals but will no longer proceed under the Budget announced by Healey.
Rosebank Oil Project Included in Budget Assumptions
Budget documents assume that the Rosebank oil project in the North Sea will receive approval, despite opposition from some ministers and Labour MPs.
The assumption forms part of the Government’s economic and fiscal projections.
Minimum Wage to Increase by 3.9 Per Cent
The minimum wage will rise by 3.9 per cent from April.
However, the Government appears to have abandoned its drive to bring the minimum wage rate for workers under 21 into line with the rate for older employees.
The Budget also includes a special tax allowance for the lowest-income pensioners, intended to prevent them from becoming liable for income tax as the state pension increases in April.
Healey Says Budget Meets Fiscal Rules
Before presenting the Budget to Parliament, Healey outlined its details to the Cabinet and posed with his red ministerial box outside No. 11 Downing Street.
He said the Government would meet its fiscal rules, including the requirement for day-to-day spending to be covered by tax receipts and for public sector net financial liabilities to fall as a proportion of GDP.
The Chancellor described the measures as an effort to provide short-term relief while creating the conditions for lower energy costs and continued economic investment.
The Budget comes after tax increases introduced during Labour’s first two years in government, with frozen tax thresholds continuing to contribute to higher projected revenues.
Government Faces Questions Over Brexit Position
The Prime Minister also sought to address unrest within the Cabinet over his efforts to improve the UK’s relationship with the European Union.
He insisted that his aim was to secure a “better deal for Britain” as the Government continued to face debate over its approach to Brexit.
