Healey Delivers First UK Budget With £100 Energy Help Paid for by a Temporary Bank Tax Rise

Britain’s Chancellor of the Exchequer, John Healey, has delivered his first Budget, putting immediate help with energy bills at the centre of a package he presented as a response to what he repeatedly called global economic storms. The UK Budget 2026 John Healey bank surcharge energy payment plan offers a one-off £100 payment to around 20 million households, extends tax relief on electricity bills, and removes the standing charge from household gas bills, while asking banks to pay a higher, temporary surcharge on their profits to help fund the support.

The statement, delivered to Parliament on Wednesday, October 28, 2026, was Healey’s first Budget as Chancellor and the first Budget of Prime Minister Andy Burnham’s government. It arrived against a difficult backdrop of higher energy costs linked to conflict in the Middle East and the continuing war in Ukraine, trade tensions, rising borrowing costs, and a downgraded forecast for growth next year. Healey argued that the package balanced immediate relief for households and small businesses with fiscal discipline, while critics and campaigners were quick to point to what the Budget did not do, including leaving frozen income tax thresholds unchanged.

What the Budget Announced at a Glance

A £100 Payment for 20 Million Households

Around 20 million households in council tax bands A to D will receive a £100 Household Energy Payment, paid directly into bank accounts, at a total cost put at £2.6 billion. The payment is aimed at households in lower-valued homes, which are generally more exposed to rising energy costs, and Healey presented it as breathing space through the coldest months of the year rather than as a permanent change to bills.

The scale of the payment matters for how it will be judged. At £100 per household it will not cover a winter’s energy costs on its own, and it sits alongside other measures that are designed to reduce bills over a longer period. Its political purpose, however, is clear: to show that the government is acting directly on the cost of living, and to link that help visibly to a contribution from the banking sector.

Banks Pay More, but Only for 15 Months

To help pay for the energy package, the Bank Corporation Tax Surcharge will rise by three percentage points, from 3 per cent to 6 per cent, on profits above £100 million, starting in January and lasting for 15 months. Healey stressed that the increase was time-limited and explicitly tied to immediate support on energy bills, saying he was looking to banks to help give ordinary people breathing space.

The market reaction was telling. Bank shares rose after the announcement, with Lloyds, Barclays and NatWest among those gaining, because the increase was smaller than some in the City had feared, with some industry figures having braced for a rise to 8 per cent. Healey praised Britain’s banks for their contribution in tax, jobs and industry, a tone that suggested he wanted the measure to be seen as a temporary contribution rather than as a punishment for the sector.

Energy Bills Beyond the £100 Payment

Electricity Tax Relief Extended to July

The VAT cut on domestic electricity bills, in force since October 1, will be extended through winter and spring to July, with Healey saying it would take £50 off the annual price cap. The extension matters because it spreads help across the months when households use most energy, rather than concentrating it in a single payment, and it applies more broadly than the council-tax-band payment.

For households, the combination of a one-off payment and a longer VAT cut is the core of the energy package. The payment gives a visible, immediate sum, while the VAT extension lowers the underlying bill over several months. Together they are meant to soften a leap in energy bills driven in part by higher oil and gas prices, although neither measure removes the underlying exposure to global energy markets.

Gas Standing Charges to Be Removed

From next year, standing charges will be removed from household gas bills through the regulator Ofgem, with similar reforms to follow for electricity. The gas standing charge usually costs the average household £108 a year, and the government estimates that 60 per cent of households will save an average of £45 a year from the change.

Standing charges have long been controversial because they are paid regardless of how much energy a household uses, which means they fall hardest, in proportionate terms, on low users. Removing them from gas bills is therefore a structural change rather than a one-off payment, although its full effect will depend on how Ofgem implements the reform and how suppliers adjust other parts of bills in response. That implementation detail is not yet fully confirmed in public reporting of the Budget.

Help for Drivers and Small Businesses

Fuel Duty Cut Extended to July 2027

Drivers will also get more breathing space, with the 5p-per-litre cut in fuel duty extended to July 2027 and a freeze on fuel duty rates until at least July, at a total cost put at £1.4 billion over the period. Healey linked the move directly to events in the Middle East pushing up fuel prices, and presented it as practical help for people who depend on a car for work or family life.

Fuel duty is a sensitive measure because it affects almost every household and business that uses road transport, and because its cost to the Treasury is large. Extending the cut therefore signals that the government is willing to spend substantial sums to cushion fuel prices, even while it argues for fiscal discipline elsewhere. Whether the saving is passed on in full at the pump will, as in previous years, depend on retailers and wholesale prices.

Rates Relief for Shops, Restaurants and Gyms

Small businesses received one of the Budget’s most eye-catching measures, with the Small Business Rate Relief threshold for retail, hospitality and leisure firms rising from £12,000 to £18,000. Healey said the change, funded in part by higher gambling taxes, would mean that 70,000 businesses would be taken out of paying rates altogether, so that half of shops, restaurants and gyms would now pay no business rates at all.

The trade allowance will also triple, from £1,000 to £3,000, giving smaller traders more room before tax applies. For high streets that have faced years of rising costs, online competition and weaker consumer spending, rates relief is a direct reduction in a fixed cost, and business groups had urged Healey to cut energy and employment costs ahead of the statement. The test will be whether the relief reaches the smallest firms quickly and whether it is enough to offset other pressures.

The Fiscal Picture Behind the Package

Growth Downgraded for 2027

The Office for Budget Responsibility downgraded its forecast for growth next year to 1.0 per cent, down from the 1.6 per cent it expected in the spring, a cut Healey linked to the war in the Gulf and its effect on oil and gas prices. Growth in 2026 was upgraded slightly, from 1.1 per cent to 1.2 per cent, while the forecast was unchanged at 1.6 per cent in 2028 before rising to 1.8 per cent in 2029 and 1.7 per cent in 2030.

The downgrade is important because it frames the whole Budget. A weaker growth outlook means less tax revenue than previously expected and more pressure on public finances, which in turn limits how much a Chancellor can spend without increasing borrowing. Healey still promised to meet Labour’s first fiscal rule, which requires current spending to be balanced with tax receipts by 2029-30, but the path to that target has become harder.

Headroom Falls, Then Is Rebuilt

The cushion against missing that fiscal target, known as headroom, has fallen to £15 billion in 2029-30, compared with £24 billion set aside in March, although Healey said it would be rebuilt to £22 billion by 2030-31. He also said Britain is spending £14 billion more on debt interest this year than expected, a reminder of how rising borrowing costs constrain every other choice in the Budget.

The Financial Times put the immediate giveaway at £7.6 billion in 2026-27, less than 0.25 per cent of gross domestic product, which helps explain why markets reacted calmly. The Office for Budget Responsibility also warned that the plans, combined with higher inflation and borrowing costs, would add £65 billion to borrowing over five years and slow the pace of fixing the public finances in the near term. Healey’s argument was that a buffer should be used when needed and rebuilt when possible, rather than held untouched while households struggle.

Who Else Pays for the Package

Gambling, Savers and Landlords Face Higher Taxes

Beyond banks, Healey raised taxes on gambling, savers and landlords to help fund the cost-of-living package and property tax relief for small businesses. Machine games duty, the tax levied on slot machines, will rise from 20 per cent to 25 per cent, a move that helped fund rates relief and was not as steep as some in the gambling industry had feared, with shares in Rank Group and Entain rising after the announcement.

Savers and landlords face a two-percentage-point rise. From April 2027, non-ISA savers will face an extra four percentage points in tax on interest once earlier increases are included, with basic-rate taxpayers paying 24 per cent, higher-rate taxpayers 44 per cent and additional-rate taxpayers 49 per cent once their Personal Savings Allowance is exhausted. Landlords will see a surcharge on rental income doubled next April, from 2 per cent to 4 per cent, a measure that continues a decade of tighter tax treatment for buy-to-let landlords.

Tighter Rules for Online Marketplaces

Healey also tightened value-added tax rules for online marketplaces such as Amazon and eBay, a move aimed at ensuring that sellers using large platforms pay the tax that is due. The measure is part of a broader effort to raise revenue without raising headline rates of income tax or VAT, by closing gaps in the system and spreading the burden across businesses that benefit from the UK market.

These revenue measures matter because they show how Healey chose to pay for his package. Rather than borrowing the full cost, he spread it across banks, gambling, savers, landlords and online platforms, while still accepting higher borrowing overall. Supporters will argue that this is a fairer way to fund help for households, while critics will argue that higher taxes on saving and renting will discourage investment and push up costs for tenants and savers.

Workers, Families and the Cost of Living

Minimum Wage Rises by 3.9 Per Cent

Workers will see the legal minimum wage, the National Living Wage, rise by 3.9 per cent from April 2027, a measure that will lift pay for the lowest-paid workers at a time when energy and food costs remain high. The increase is part of the Budget’s wider cost-of-living package, although its exact cash effect will depend on a worker’s age, hours and current rate, details that are set out in the full Budget documents rather than in the Chancellor’s speech alone.

A higher minimum wage helps those in work, but it also raises costs for employers, particularly in retail, hospitality and care, sectors that are already facing higher energy bills. The balance between supporting low-paid workers and protecting jobs in those sectors is one of the oldest tensions in Budget policy, and it will be tested again as the new rate takes effect next spring.

Carers, Parents and Pensioners

Unpaid carers will no longer lose their entire Carer’s Allowance if they earn more than £204 a week after tax, with a taper introduced instead so that support falls gradually rather than stopping at once. The cliff edge in Carer’s Allowance has long been criticised for punishing carers who take on a few extra hours of work, and removing it is a targeted change that affects a relatively small group but matters greatly to those it touches.

Parental pay will be extended to self-employed fathers and parents in same-sex couples, and a new tax-free allowance for low-income pensioners is designed to ensure that those with income up to the value of the full new State Pension do not pay income tax. Import taxes will also be removed on more than 100 food products, including gherkins and marmalade, as well as on kerosene and fertilisers, while the tax-free mileage rate for people driving for work will be made permanent at 55 pence per mile for up to 10,000 miles, rising from 25 pence to 35 pence per mile above that distance.

Defence, Welfare and Decisions Deferred

£10 Billion More Support for Ukraine

The Budget also allocated £10 billion in additional economic and military support for Ukraine, according to reporting of the announcement, at a time when the war continues to shape energy prices and security policy across Europe. The allocation underlines how closely domestic economic policy is now tied to international events, with the cost of supporting Ukraine and the cost of higher energy bills both flowing from the same conflicts.

Healey deferred a decision on spending 3 per cent of GDP on defence by 2030, rising to 3.5 per cent in 2035, with that decision to be made in next year’s Spending Review. Major welfare reform decisions were also deferred into 2027, and plans for deep departmental spending cuts were postponed until next year, suggesting that some of the hardest choices in the Budget have been put off rather than resolved.

Welfare Spending Still Rising

Welfare spending is forecast to reach £431.3 billion by 2031-32, according to the Office for Budget Responsibility, up 37 per cent from £314.8 billion in the final full year of the previous Conservative government, an increase of £116.5 billion. Healey pledged to bring down welfare spending in a Labour way and reiterated previously announced plans to reform the pension triple lock, but he declined to detail new announcements until reviews by Alan Milburn and Stephen Timms are published later this year.

The welfare picture is central to the fiscal debate because it is the largest single area of public spending and one of the fastest growing. Without reform, it will continue to absorb a growing share of tax revenue, leaving less room for investment in services, infrastructure and defence. Healey’s decision to wait for the reviews before announcing major changes means that debate will dominate the run-up to the next Budget.

Reaction and What Happens Next

Markets Calm, but Campaigners Disappointed

The immediate market reaction was calm, with bank shares rising and gambling shares also gaining, because the tax rises were smaller than some had feared. That calm matters for a Chancellor who must avoid piling more pressure on government borrowing costs, which have risen globally this year and have ensnared countries such as France, which is struggling to shore up its finances amid social unrest.

Campaigners were less satisfied. Martin Lewis said he was disappointed by the absence of change on the freeze of income tax thresholds and on the double fiscal drag affecting Plan 2 student loan repayments, which remain frozen at £29,385 until 2030. For households, frozen thresholds mean that pay rises can push more income into tax even when real living standards have not risen, a stealthy way of raising revenue that Healey chose not to reverse.

The Tests That Will Judge This Budget

The first test will be practical: whether the £100 payments reach bank accounts this winter, whether Ofgem removes gas standing charges as promised, and whether the VAT extension and fuel duty cut are felt in bills and at pumps. The second test will be economic: whether growth recovers from the downgraded 2027 forecast and whether borrowing falls as Healey projects, to 4.2 per cent this year, 3.4 per cent next year, 2.9 per cent in 2028-29, 2.1 per cent in 2029-30 and 1.8 per cent in 2030-31 and 2031-32.

The third test will be political: whether voters feel that a Budget for working people and businesses big and small has actually eased the pressure on their household budgets. Healey told MPs that the storms facing Britain cannot be wished away and that the country must choose the course it steers through them. By the time the next Budget arrives, with welfare and defence decisions due and the temporary bank surcharge nearing its end, it will be clearer whether this Budget steered Britain through those storms or merely bought it time.

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