John Healey’s First Budget: Key Points and What It Means

The Budget offered relief in one direction while taking money away in another, leaving savers and buy-to-let landlords among those bearing the cost.

John Healey used his first Budget to set out targeted cost-of-living support, while cautioning that households and businesses face a continuing “global economic storm”.

Against a backdrop of borrowing costs at their highest level in three decades and rising fuel and energy bills, Healey promised to give families and companies some much-needed “breathing space”.

The package includes help with household energy costs, although the £100 payment will be limited to properties in council tax bands A to D.

The measures were presented as a restrained “do no harm” Budget, combining modest tax increases with cost-of-living assistance funded partly by higher bank taxes. Major decisions on defence, benefits and social care, however, have been pushed back.

Savers are unlikely to accept that description. The Chancellor has delivered another blow to returns on savings, imposing a further tax increase on top of a rise announced by Rachel Reeves that has yet to take effect.

Tax on interest earned from savings will rise from the existing rates of 20 per cent, 40 per cent and 45 per cent to 24 per cent, 44 per cent and 49 per cent respectively.

The Office for Budget Responsibility also published its latest forecasts, highlighting the difficult economic conditions confronting the Chancellor.

Key stories from the Budget 2026

> Budget income tax raid targets savers and landlords as Healey adds another 2% to Reeves’ planned increase

> Will the First Home scheme help you buy sooner? Here is everything you need to know

> New Budget rules spare the poorest pensioners from income tax, but others could face a 53% hit

> How to find your council tax band and check whether you qualify for Labour’s £100 energy payment

> Frozen income tax thresholds: use our salary calculator to see how much they could cost you

> Investing starter Isa planned as ministers unveil Budget proposals to encourage savers to invest

> Chancellor abandons Rachel Reeves’ cash Isa tax raid and leaves the £20,000 savings limit unchanged

> Standing charges on gas bills to be scrapped: what does the change mean for your energy costs?

> Plan to address rising public EV charging costs leaves a £1,000-a-year divide between drivers with and without driveways

> Side hustle boost for Vinted and eBay sellers as tax-free trading allowance triples to £3,000

> M+: Healey has delivered another attack on prudent savers, and I fear it may be only the beginning, writes JEFF PRESTRIDGE

Budget built on ‘fiscal discipline’ 

The Chancellor opened his Budget by saying it is for the ‘working people of Britain, for British businesses, big and small’. 

He said: ‘First, by giving Britain some breathing space on the cost of living and the cost of business,

‘Second, backing the enterprise of British business to unleash innovation and growth in every postcode

‘And third, by tackling the big challenges on energy, on national security, on public service transformation and on housing.’

Borrowing is set to fall to 4.2 per cent this year, reducing to 1.8 per cent in 2030-31, while UK debt as a percentage of GDP is up to 83.2 per cent this year and 83.8 per cent next year, before dipping to 81.7 per cent in 2031-32, the Chancellor said. 

The OBR forecasts the Government will spend £14billion more on debt interest this year as Britain battles ‘global economic storms’. 

Meanwhile, GDP is expected to grow 1.2 per cent this year before falling back to 1 per cent next year, and rising to 1.6 per cent in 2028. 

Energy bills 

Healey has already announced he will axe standing charges on gas bills, in a move that will benefit millions of households – but experts warn those in larger homes could be worse off. 

The Treasury said Healey will today ask the energy regulator Ofgem to remove standing charges ‘in 2027 or as soon as possible after’. He said he will set out similar reforms for electricity bills. 

‘From this point, our priority is first and foremost cheaper energy, with clean power key to achieving this,’ he said in his statement. 

He will extend the VAT cut on domestic energy bills through the winter and pledged to take 25 per cent off business energy bills from April. 

And finally, households in council tax bands A to D will receive a £100 energy payment paid directly into their accounts. 

> What will changes to standing charges mean for your energy bill?  

Low-income pensioners avoid income tax 

The Chancellor has confirmed pensioners whose sole income is the state pension will not pay income tax. 

Those relying on just the state pension had been set to pay income tax on it for the first time from next April, as the annual amount would breach the income tax threshold of £12,570.

Fuel duty 

The 5p fuel duty cut will be extended to July 2027, the Chancellor confirmed. 

Duty paid on motor fuels has been frozen since 2011, except for the temporary cut which was introduced in 2022 when oil prices spiked after Russia’s full-scale invasion of Ukraine.

Savers and landlords face higher tax rates 

From April 2027, savers and landlords who are basic rate taxpayers will pay 24 per cent income tax on interest and rents, up from 20 per cent today. 

It follows the two percentage point hike imposed by former Chancellor Rachel Reeves in last year’s Budget. 

> Savers and landlords hammered with income tax raid in Budget as Healey ratchets up Reeves’ hike 

Business rates relief 

John Healey said he will make it so that 70,000 more small businesses do not have to pay any business rates.

He will increase the threshold for small business rates relief for retail, hospitality and leisure businesses from £12,000 to £18,000. He said this would be welcome news for firms such as bakeries and hair salons, which ‘make the places we live and work, the places we love.’

For larger retail and hospitality firms, he announced a freeze on rates in real terms, ‘so that none face an above-inflation rise for two years.’ Vape shops and adult gaming centres will be exempt. 

And Healey confirmed all business rates will be retained locally by the end of the decade, with 20 per cent of revenue going to mayors from next year. 

Gambling tax hikes 

Healey said he would fund tax breaks for the High Street by hiking gambling taxes, including increasing machine games duty from 20 per cent to 25 per cent for higher stakes machines. But he said he would protect pubs and seaside arcades from the increases.

Minimum wage rise 

The national minimum wage and national living wage will increase by 3.9 per cent for 2.3 million workers, Healey confirmed. 

Cash Isa cut reversed

Healey has abandoned his predecessor Rachel Reeves’ plans to cut the cash Isa allowance from £20,000 to £12,000, and confirmed he will work with the sector to create a new ‘starter Isa‘ to reward first-time investors. 

Tax on banks 

John Healey has confirmed a temporary rise in the bank surcharge, currently levied at 3 per cent on top of the 25 per cent corporation tax rate, by an extra 3 percentage points to 6 per cent to help fund energy support. 

‘Banks will pay an extra 3 per cent on the Bank Surcharge, this will be time limited, to pay for immediate support on energy bills. Starting in January, ending 15 months later,’ he said.

‘I’ve made my choice at this Budget: asking a bit more of our banks to support ordinary people, raising taxes on gambling to support good growth on every high street.’ 

> Bank shares jump after Budget tax raid ‘not as bad as feared’ 

Help for entrepreneurs 

Healey has pledged more support for entrepreneurs with a ‘founders’ relief’, a 10 per cent rate on lifetime gains up to £10million for the most successful founders.

The Chancellor has introduced a higher trading allowance, meaning people can earn £3,000 without paying any tax, from £1,000 previously.

He will also launch a new young entrepreneurs allowance, which will cover a year of living costs for founders.

Defence 

Healey, who resigned as defence secretary under Sir Keir Starmer, said he would fill a £4.7billion gap in the Defence Investment Plan. 

‘In today’s budget, I am fully funding the Defence Investment Plan, including through capital reprioritisation across Whitehall.’

‘This honours the commitment made both by me – and by the prime minister’.

He said he is ‘getting work under way’ to reach spending of 3 per cent of GDP on defence by 2030 and will set out how he will hit that target at next year’s spending review. 

Britain will also commit £10 billion of additional economic and military support to Ukraine, and half a billion in urgent military funding this winter. 

Your First Home scheme 

The Government will launch a new first time buyer Isa to replace the lifetime Isa and confirmed plans for its ‘Your First Home’ scheme, which will allow buyers to get on the property ladder with a 2.5 per cent deposit. 

They will also be offered an equity loan of up to 20 per cent of the property price, reducing the cost of their mortgage. 

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