By Islam El-Sakka
UK Chancellor John Healey delivered his first budget on Wednesday, outlining measures to ease cost-of-living pressures, boost defence spending, and devolve fiscal powers to local leaders.
Fiscal rules and growth forecasts
Healey pledged to meet the fiscal rule requiring day-to-day spending to be covered by tax receipts and the investment rule targeting falling debt as a share of GDP by the third forecast year. The Office for Budget Responsibility projects GDP growth of 1.2% this year, 1% in 2027, rising to 1.8% by 2029 before easing slightly. Government debt is forecast at 83.2% of GDP this year, declining to 81.7% by 2031.
Energy cost measures
The chancellor extended a VAT cut on energy bills through July, removing £50 from the annual price cap. Standing charges on gas bills will be abolished for 23 million homes, saving two-thirds of households an average £45 a year. A one-off £100 payment will go to 20 million households in council tax bands A to D, costing £2.6 billion.
Wages and cost of living
Fuel duty will be frozen for a 16th consecutive year. The higher mileage allowance for work-related car use rises from £0.25 to £0.30 per mile. Import tariffs on over 100 products, including baked beans and chocolate, will be removed. The national living wage and minimum wage will increase by 3.9% in April, and self-employed fathers gain eligibility for paternity leave pay.
High street and business rates
The threshold for small business rate relief in retail, hospitality and leisure rises from £12,000 to £18,000, benefiting 70,000 firms. Machine games duty on higher-stakes machines increases from 20% to 25%, and online marketplace sellers face tighter VAT compliance.
Business and personal taxes
Healey reversed a planned cut to the cash ISA tax-free allowance, keeping it at £20,000. Banks will pay an extra 3% surcharge for 15 months from January. No changes were made to dividend or employment income tax rates.
Business growth and AI
The government will support Rolls-Royce in developing next-generation jet engines and inject £20.4 billion into the National Wealth Fund and British Business Bank. A new "British datacentre covenant" ties faster grid connections to local investment and water protection. Entrepreneurs gain a higher tax-free venture earnings threshold (£3,000) and a 10% "founders' relief" on lifetime gains up to £10 million.
Devolution and regional investment
Healey announced a roadmap for fiscal devolution: by 2030, 100% of business rates will be retained locally, with 20% going to mayors from next year and a share of income tax from 2028. Specific investments include £10 million for a Stafford market hall, £10 million for Bristol's Temple Quarter, and £50 million to upgrade Leeds College of Building.
Defence spending
The budget fully funds the defence investment plan, with a target of 3% of GDP by 2030 en route to 3.5% by 2035, though detailed allocations await next year's spending review. The National Wealth Fund and British Business Bank will direct up to £5 billion toward defence over four years.
Welfare and housing
A white paper on welfare reform is expected by late next year, informed by reviews on youth employment and disability benefits. Previously announced pension triple-lock changes aim to save £15 billion annually by the 2030s. Housing measures include £430 million for rough sleepers, a new first-time buyer ISA replacing the Lifetime ISA, and a £4.7 billion equity loan scheme called "Your First Home."
Closing remarks
Healey described the budget as one for "the worker, the sole trader, the parent at the school gate," funded by higher taxes on banks while avoiding rises on wages or dividends. He concluded that the plan offers "breathing space now, fresh hope for the future."
