Budget 2026: John Healey unveils first budget with energy bill help

John Healey has delivered his first budget as chancellor, promising to give people “fresh hope for Britain’s future” at a time of global economic turbulence. Healey said the budget was “delivered at a time when global uncertainties and pressures are swirling worldwide and hitting people here at home”. He paid tribute to the fiscal discipline of his predecessor Rachel Reeves, saying she took difficult decisions required.

Healey’s first priority as chancellor was fiscal discipline. He said the government would meet its fiscal rule that day-to-day spending must be covered by tax receipts. It would also meet the investment rule that public sector net financial liabilities fall as a percentage of GDP in the third year of the forecast. The Office for Budget Responsibility (OBR) said there was £15bn of headroom in 2029-30 and £22bn in 2030-31. Government borrowing was forecast at 4.2% of GDP this year, falling to 1.8% by 2030-31. The OBR predicted GDP growth of 1.2% this year, 1% next year, then rising to 1.8% in 2029 before settling at 1.6% in 2031.

Energy bills and cost of living

Cheaper energy was Labour’s priority, Healey said. To cut bills, the government would scrap the levy on bills that funds hydrogen and move older renewables onto fixed-price contracts. The VAT cut on energy would be extended through winter and spring to July, taking £50 off the annual price cap. Healey confirmed the abolition of standing charges on gas bills for 23 million homes, saving two-thirds of households an average of £45 a year. Additionally, 20 million households in council tax bands A to D would receive a one-off £100 energy payment paid directly into bank accounts, at a cost of £2.6bn.

Healey described the decision to approve the Jackdaw gas field as a “pragmatic, commonsense decision”, while insisting the government remained “unshakeably committed” to net zero. Fuel duty was frozen for the 16th year in a row. The higher mileage rate for people who use cars for work rose from 25p to 30p a mile. Healey also removed import tariffs on more than 100 products, including baked beans, chocolate and gherkins, to reduce shop prices.

Tax, welfare and business measures

Healey confirmed the national minimum wage and national living wage would rise by 3.9% in April. The national living wage for over-21s would be set at £12.71 from April 2026, and the national minimum wage for 18-20s at £10.85. He also confirmed the removal of the “cliff edge” for carers’ allowance, which had left some with debts of thousands of pounds for accidentally claiming the benefit when crossing the earnings threshold.

For businesses, the threshold for small business rate relief for retail, hospitality and leisure businesses increased from £12,000 to £18,000, a tax break for 70,000 smaller firms. Adult gaming centres and vape shops would not qualify. Machine games duty rose from 20% to 25% for higher stakes machines. Online marketplace sellers were targeted to ensure they could not get around VAT. There was no change to tax on income from dividends or employment. But Healey increased rates of tax on income from property and savings by two percentage points from April 2027. He also reversed his predecessor’s decision to cut the tax-free allowance on cash ISAs from £20,000 to £12,000 a year from April. Banks would pay a 6% bank surcharge for 15 months from January, up from 3%.