Chancellor John Healey has pledged to "steer us through the global economic storms" in his Budget 2026, but analysis shows average yearly household disposable incomes are forecast to drop by £450 by 2029 when inflation predictions are factored in.
Healey attempted to offer "breathing space" for households and high street retailers, unveiling £100 payments for millions to assist with energy costs, the scrapping of standing charges on gas bills, and increased levies on banks. However, numerous experts and campaigners have been left unimpressed by the absence of bold or transformational measures, with some branding the Budget a "hodgepodge" of minor adjustments.
Household income and growth concerns
The Joseph Rowntree Foundation cautioned that cost of living assistance - including energy support - in the Budget falls short in "address the hit to incomes from rising energy prices". The charity states that, if incomes had grown at the average rate seen between 1961 and the pandemic, households would have been on track to be approximately £5,000 better off in 2029 compared to 2024.
Chris Belfield, senior economist at JRF, said: "To unlock economic growth we need to see bolder interventions that give families and our economy the firm foundation of better living standards."
The Budget watchdog's 200-page report describes the UK's economic situation as remaining "challenging". The OBR makes clear that the economic outlook has deteriorated since its last projections in March, which were completed before the Iran war began. It slashes next year's GDP growth forecast from the spring prediction dramatically - from 1.6% to 1%.
Helen Miller, director of the respected think tank IFS, admitted Mr Healey's statement is unlikely to improve matters. He added: "This Budget has a raft of fiddly measures but very little that will move the dial on growth."
Inflation and borrowing outlook
The unpredictable global situation means the prospects for inflation are "highly uncertain", with the OBR noting how "energy prices have increased sharply since our last forecast". The watchdog acknowledges inflation could move in either direction, with a one-in-five chance that CPI inflation next year will exceed 4.5%.
In a grim reading, the OBR's data on earnings growth and disposable income reveals why households are still feeling the pinch. The watchdog reports that real household disposable income (RHDI) - a gauge of how much spare cash people actually have - has shown "virtually no growth" since the COVID-19 pandemic began. It further predicted that by 2029, a full decade later, it may have risen by a measly 1%.
The OBR's Professor David Miles stated: "That is practically unheard of in the history of the UK." He added: "It has been a dismal period in British economic history." Contributing factors include a succession of energy shocks that have hammered both households and businesses, alongside the effect of frozen income tax thresholds.
Furthermore, the OBR added inflation on wages and a loose labour market "means we expect no real earnings growth in 2027". The watchdog suggests real wage growth could then recover to roughly 0.5% annually by 2030, provided energy prices fall.
Government borrowing - which becomes necessary when expenditure exceeds tax revenues - is set to rise by billions of pounds. While Mr Healey informed MPs borrowing as a proportion of GDP will decline over the coming five years, the figure has risen by £11billion annually since the OBR's previous forecast due to interest rates and increasing inflation.
And the situation could deteriorate further, the watchdog cautions: "If energy prices reach a higher and more sustained peak, borrowing could be £17billion above the central forecast in 2027-28, while a lower energy price path could reduce borrowing by £12billion." All that borrowing results in greater government debt. And in further grim news, the OBR forecasts roughly £14billion more will be spent on debt interest this year.
Housing benefit freeze and other measures
One matter absent from the Chancellor's Budget statement was the housing benefit freeze. Over a dozen charities urged him to scrap the freeze at the weekend. Last year Andy Burnham stated that restoring Local Housing Allowance (LHA) would make a genuine difference in preventing homelessness.
Foodbank Trussell's Helen Barnard describes it as a "misstep" not to act on this issue. Crisis's Matt Downie praised the extra cash to eradicate rough sleeping and investment in social housing. He added: "The missing piece of the puzzle is taking action to prevent people being forced into homelessness in the first place."
Pub-goers and wine lovers face yet another unwelcome price hike when alcohol duty rises again next February. While the Budget stopped short of introducing any fresh tax increases, Treasury documents confirm that previously announced rises are still firmly on the cards. Alcohol duty will climb in line with the retail price measure of inflation, which sits higher than the more commonly referenced consumer price index.
While the exact month's data for RPI remains unconfirmed, September's figure stood at 3.9%. This would add another 2p to the price of a pub pint, 13p to a bottle of red wine, 42p to gin and 37p to whisky. Miles Beale, chief executive of the Wine and Spirit Trade Association, said: "No-one will be toasting yet another RPI increase on top of rising inflation." The Treasury anticipates raking in £13billion from alcohol duty this year, with rate increases offsetting an assumed average 1% annual drop in alcohol consumption.
John Healey confirmed a wage increase for younger workers is to slow down - after the Chancellor announced a 3.9% minimum wage increase for all age groups. Labour's manifesto pledged to abolish "discriminatory" age bands by raising wages for 18 to 20-year-olds so younger workers receive the same pay as those aged over 21. To offset this, the national minimum wage for those aged 18 to 20 has been increased by a greater margin than the rate for older workers. For example, the minimum wage for younger workers climbed by 8.5% this year, narrowing the gap to £1.86 an hour. However, this progress has now stalled.
Business Secretary Jonathan Reynolds said earlier this week: "The manifesto pledge on equalisation still applies but we were always clear it could happen over time."
The Department for Energy Security and Net Zero has faced budget reductions to help finance the defence investment plan. This encompasses a £1billion slash to the flagship Warm Homes Plan. Launched under Keir Starmer, the scheme aims to invest in home improvements to help reduce bills and lift households out of fuel poverty. It offers grants and loans to make it simpler for homeowners to install heat pumps, solar panels and batteries, alongside direct assistance for home upgrades for those on lower incomes or struggling with fuel poverty.
The government states that the "majority" of funding for low-income households and social housing remains protected – though not entirely. It also confirms its commitment to the rollout of heat pumps and will maintain the Boiler Upgrade Scheme at current funding levels of £400million in 2027‐28, rising "broadly" in line with inflation thereafter.
One in eight households among the nation's poorest half of earners are set to miss out on a £100 energy discount unveiled in the Budget, according to stark analysis. Leading think tanks the Resolution Foundation and the IFS both challenged the energy support scheme - which provides a £100 payment to households in council tax bands A to D. The group have questioned why it was tied to the outdated council tax system, which relies on property values from 1991.
Research from the Resolution Foundation revealed approximately one in eight households in the lower half of the income distribution reside in higher band properties and are set to lose out. Meanwhile, the IFS added: "relying on the outdated council tax system to provide one-off payment of £100 to around 80% of households in England, rather than just those on low incomes".
