UK Finance Minister John Healey delivered his first budget on Wednesday, announcing a package of measures aimed at easing cost-of-living pressures for households while bolstering defense spending and raising revenue through a bank tax. The budget, presented to Parliament under Prime Minister Andy Burnham's Labour government, focused on energy relief, business support, and military commitments amid global economic uncertainty.
The centerpiece of Healey's cost-of-living measures was a £100 energy payment for approximately 20 million households in England classified in council tax bands A through D, costing £2.6 billion. The budget also included the abolition of standing charges on household gas heating bills—currently averaging around £108 annually—though the charge will be incorporated into per-unit gas pricing by the end of 2027. An extension of a tax break on electricity for millions of households was also announced, running through July 2027. Healey cited the need for "radical change on energy," pointing to inflation driven partly by the U.S.-Iran war and the UK's vulnerability as a net energy importer. Inflation had reached 3.5% in September, with energy prices a significant driver.
The budget targeted additional economic pressures through several channels. Small business rates relief was expanded to include more companies in hospitality, retail, and leisure sectors. Tariffs were removed on over 100 grocery products. The UK's minimum wage for those aged 21 and older was set to rise by 3.9% to approximately £13.20 per hour. Fuel duty was frozen for another year, a continuation of an emergency cut introduced after Russia's invasion of Ukraine. A planned cut to tax-free savings thresholds was canceled, preserving the £20,000 annual limit for cash ISAs. Meanwhile, tax rates on interest from savings and rental income were increased: landlords and some savers will face a basic rate of 24% (up from 20%), higher rate of 44% (from 40%), and additional rate of 49% (from 45%) beginning April 2027.
Healey also announced housing support, including new first-time buyer schemes and £15 million for children's books. The budget included funding aimed at reducing homelessness and reforms to welfare programs, though Healey said he would not "write off a million young people" or "see disabled people suffer." However, critics noted that reforms to carer's allowance will not take effect until 2030 due to IT system updates.
On defense, Healey committed to increased military spending to meet NATO obligations. The budget included £10 billion in additional economic and military support for Ukraine, on top of £25 billion previously committed by successive governments. Healey announced that he would set out plans at next year's Spending Review to meet NATO's commitment of 3% of GDP on defense by 2030, with a target of 3.5% by 2035. He described these commitments as necessary in "this new era of threat."
Healy also pledged substantial investment in artificial intelligence, describing the state's role in AI development as clear and necessary. He announced hundreds of millions of pounds in funding for AI security and sovereignty, along with a "covenant" for data centers requiring them to invest in local communities, create jobs, and protect water supplies. Tax breaks for founders, including reduced capital gains tax on gains up to £10 million, were also introduced. Regional innovation hubs received additional funding under what Healey termed efforts to "unleash Britain's innovation power."
Assessment of the budget's impact varied. Markets responded broadly positively, reflecting Healey's caution not to alarm financial markets amid high government borrowing costs. However, commentators noted the modest scale of relief relative to projected energy price increases—with forecasts suggesting bills could rise by 16% to 27% in January 2027, to between £1,999 and £2,192 annually. The Office for Budget Responsibility forecast UK GDP growth at 1.2% in 2026 and 1% in 2027, a sharp decline from earlier expectations.
