Chancellor John Healey has delivered his first Budget speech in the Commons, announcing measures to ease energy bills and reform taxes while facing rising inflation and strained public finances.
Growth and borrowing forecasts
The Office for Budget Responsibility has upgraded its growth forecast to 1.2% this year, followed by 1% next year, 1.6% in 2028, 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031. Mr Healey said: “Yes, there are real challenges ahead, but Britain has beaten the forecasts this year, And with the action I’m taking today, I believe Britain can beat them again.”
Britain will spend £14bn more on debt interest this year, according to the OBR. Borrowing falls to 4.2% this year, 3.4% next year, 2.9% in 28/29, 2.1% in 29/30, and 1.8% in 30/31 and 31/32. The “fiscal headroom” will be £15bn in 2029/30, rising to £22bn in 2030/31.
Energy bills and household support
Standing charges on gas bills, which cover the cost of delivery to homes and businesses, will be scrapped from 2027 “or as soon as possible after,” according to the Treasury. VAT has been axed from electricity bills. For business, the new British Industrial Competitiveness Scheme will take 25% off electricity bills for 10,000 firms.
20 million households in council tax bands A-D will get a £100 ‘Household Energy Payment’ paid directly into their bank accounts to help with rising energy bills. The scheme will cost £2.6bn.
Tax changes and business measures
The 5p cut to Fuel Duty and the reduction in red diesel to its lowest rate in over 20 years are extended until July. Tariffs on more than 100 supermarket products, including chocolate and gherkins, are suspended to keep prices down.
Mr Healey promised a “radical devolution of powers and resources to local leaders,” including to London Mayor Lord Sadiq Khan. He hit the City with an extra 3% on the Bank Surcharge to fund help on energy bills for less well off households.
The Chancellor said he was maintaining full expensing in Corporation Tax for eligible assets. He added: “For other assets, I will provide greater upfront relief for new investment, increasing the main rate first-year allowance from 40% to 50%, while reducing the main writing down allowance from 14% to 12%.” He cut the threshold for Business Asset Disposal Relief in Capital Gains Tax from £1m to £500,000, stressing no change for 3 in 4 claimants. He added: “I am increasing the rates of tax on income from property and savings by a further two percentage points from April 2027.”
The threshold for Small Business Rate Relief for retail hospitality and leisure businesses was increased from £12,000 to £18,000. Mr Healey gave HMRC funding to improve compliance and stronger powers to collect overdue tax from those who can clearly afford to pay. He added: “I am reforming the administration of self-assessed income tax from 2029… …bringing more of these taxpayers in line with the majority, So that they make smaller, more regular payments instead of facing larger bills that are harder to pay.” Machine Games Duty was raised from 20% to 25% for higher stakes machines.
Budget aims and pension changes
Summing up his plans, Mr Healey said: “This Budget is designed to give households breathing space from some of the everyday costs, provide targeted support for businesses and self-employed people, and to start the long-term action needed to get energy costs down for good.” The “triple lock” will be changed from 2030 so the State pension rises by inflation, 2.5% but not the increase in average earnings, whichever is higher.
