Earlier this week, the Chancellor John Healey delivered his first budget as UK households and businesses come under pressure from the unfolding economic shock caused by the war in the Middle East. Promising to steer Britain through “global economic storms”, Healey said that his budget would deliver “fresh hope” and support families with the immediate pressures facing them.
There will be sighs of relief within government that the Chancellor’s first budget managed to avoid any of the major pitfalls that befell Starmer and Reeves before them. If some people found it somewhat underwhelming, others will be toasting the fact it did not spook either the Parliamentary Labour Party (PLP) or the bond markets and gives people some “breathing space” – a narrative interspersed throughout his speech.
On the surface, it did achieve its aims of setting a broad sense of direction and showing a base level economic credibility. Demonstrating competence with the public finances alongside a consistent narrative around what they want to do is not always straightforward for Labour Prime Ministers. Appealing to the instincts of the PLP can mean ignoring the public and it’s always a balancing act for Labour, which only Tony Blair managed to make look effortless.
However, critics will point out that this budget did not address the fundamental issues facing the country – defence, welfare and the role of the state amid the rapid growth of Artificial Intelligence (AI). Big questions on devolution, social care, welfare reform, our relationship with the European Union or our wider foreign policy will all have to wait for another day.
All of which raises the question that, until now, has seemed premature: whether the Prime Minister should consider calling an early election. While the political and economic risks remain significant, today’s budget may have strengthened the case for going to the country sooner rather than later.
An election would be a gamble, with no guarantee that a relatively stable budgetary picture would translate into electoral support. But delaying also carries risks, particularly if economic conditions deteriorate or the government’s room for manoeuvre narrows. Ultimately, the timing of any election will depend on whether the government believes it has more to gain from seeking a mandate now than from allowing events to run their course.
Potential election aside, a busy Autumn awaits with the Milburn and Timms reviews expected in November, followed by the ten-year national plan, which the Prime Minister will set out In December, informing a Spending Review pencilled in for next year.
Responding to the budget, Conservative Party Leader, Kemi Badenoch, called on Healey to resign for not making the changes over which he had left his Defence Secretary job earlier this year. She further mocked its contents, claiming that it does not adequately address the major issues facing the country but instead focuses on a series of trivial measures, like “3p off gherkins“.
The following documents are available:
Key points from the budget
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The Chancellor confirmed that his budget met the fiscal rules in the third year of the forecast, using some of the headroom from last year to absorb energy price shocks. The OBR’s forecast confirmed that the headroom against the stability rule was £15bn in 2029-30, rising to £22bn in 2030-31.
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The OBR has upgraded its growth forecast for 2026 to 1.2 per cent, falling to 1.0 per cent in 2027 before rising again to 1.6 per cent in 2028 and 1.8 per cent in 2029.
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Borrowing is forecast to fall from 4.2 per cent of GDP in 2026-27 to 3.4 per cent in 2027-28, 2.9 per cent in 2028-29, 2.1 per cent in 2029-30 and 1.8 per cent in 2030-31 and 2031-32.
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There are no increases to the headline rates of Income Tax, National Insurance or VAT, and the Corporate Tax Roadmap is maintained.
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Households in council tax bands A to D in England will receive a one-off £100 Household Energy Payment from January 2027, a £2.6bn scheme reaching up to 20 million households. Equivalent funding will be made available for Scotland, Wales and Northern Ireland.
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The cut to VAT on domestic electricity will be extended to July 2027, taking around £50 off the annual price cap, and gas standing charges will be abolished from 2027.
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The 5p fuel duty cut and freeze, the red diesel duty cut and the HGV road tax holiday will be extended to July 2027.
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The British Industrial Competitiveness Scheme will give 10,000 energy intensive manufacturers a 20-25 per cent electricity discount from April 2027.
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Import taxes will be removed on more than 100 food products, including gherkins and marmalade.
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There will be a new tax-free allowance for low-income pensioners, to ensure those with income up to the value of the full new State Pension will not pay income tax. The Triple Lock will be adjusted from the next Parliament to help fund a National Care Service in England.
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The National Minimum Wage will rise by 3.9 per cent to £13.21 an hour and the 18-20 rate to £11.27 from April 2027.
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The Chancellor announced a new Founders’ Relief on Capital Gains Tax rate, a 10 per cent rate on lifetime gains up to £10m.
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The National Wealth Fund and British Business Bank will receive an additional £20.4bn, including £2bn for a new Energy Wealth Fund.
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The Chancellor announced that 100 per cent of business rates will be retained locally by the end of the decade and that from next year, 20 per cent of business rates revenues will go directly to mayors. From 2028, a share of income tax will go to mayors.
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An additional £1.5bn will be allocated to deliver around 10,000 social and affordable homes, and £4.7bn is confirmed for the Your First Home equity loan scheme for first-time buyers.
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Over £600m will be invested in AI, including £120m for the AI Security Institute and £100m for a national AI Biosecurity Lab.
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Defence spending will reach 3 per cent of GDP by 2030 and 3.5 per cent by 2035, and over £10bn of additional financial support will be made available to Ukraine.
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The Scottish Government will receive an additional £600m, the Welsh Government £450m and the Northern Ireland Executive £270m.
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Tax rates on savings and property income will rise by a further two percentage points from April 2027, while the cash ISA limit will stay at £20,000.
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The Small Business Rate Relief threshold will be raised so that a further 70,000 retail, hospitality and leisure businesses pay no business rates, with all other RHL properties seeing a two-year real-terms freeze. Machine Games Duty will rise from 20% to 25% on higher-stakes machines to help pay for this change.
