John Healey doubled the additional levy banks pay on their profits to 6% and raised tax on income from property and savings by 2p in his first budget on Wednesday, funding a £100 winter payment to 20 million households, The Guardian reported. The bank surcharge increase will last 15 months, and the £2.6bn cost of the giveaway includes funding for the Scottish and Welsh governments, which the Chancellor said he hoped would run a similar scheme.
The package was presented against a deteriorating outlook. According to Euronews, Healey told parliament that GDP would grow 1.2% in 2026, up from a government estimate of 1.1% issued shortly after the start of the US-Iran war, before slowing to 1.0% next year, down from the 1.6% forecast for 2027 that Labour issued in early March. The Office for Budget Responsibility (OBR) said inflation would rise to almost 4% and described a "pretty grim picture" for household finances, The Guardian reported.
Who pays and who receives
The £100 payment will go to all English households in council tax bands A-D. Healey framed it as temporary relief rather than a solution, saying the government should give people "a bit of breathing space" during the conflict in the Middle East, which he blamed for driving up oil and gas prices. The Guardian reported that EDF expects the Ofgem price cap to rise by £466 in January, a figure that puts the £100 payment in context. The funding side falls on two distinct groups. Banks face a doubled surcharge on UK profits for just over a year. Landlords and savers face the 2p increase on income earned from property or savings, which The Guardian described as unexpected. The OBR warned that the property measure risks "leading to a steady rise in rents" by deterring landlords from the market and reducing supply, while also passing costs to tenants. Industry reaction was mixed. Laura Suter, director of personal finance at AJ Bell, told The Guardian that savers face "another hefty tax rise on their savings interest" and that the rental income tax "could be passed on to tenants, with rent hikes a potential lever for landlords to mitigate any increase in tax". She added that more landlords may sell up in favour of assets with lower taxes. The Resolution Foundation's chief executive, Ruth Curtice, criticised the handout as "badly targeted support", arguing more generous help should have gone to the poorest.A lighter touch on banks than feared
The bank surcharge rise proved less severe than some in the industry had anticipated. The Guardian reported that bank shares were among the highest risers in the FTSE 100 on Wednesday, and that the 15-month duration limits the hit relative to a permanent increase. That market reaction is the clearest signal that the levy was priced as a contained cost rather than a structural change to UK bank profitability. For lenders with UK operations, the practical question is the duration and scope of the surcharge rather than its headline rate. A 15-month window means the charge lands in near-term earnings but does not reset the long-run tax base. The Guardian noted Healey faced criticism for failing to extract more from profitable banks, suggesting the measure was calibrated to raise revenue without unsettling bond markets. The paper reported that bond markets appeared unruffled by higher-than-expected borrowing.Fiscal room and the spending review
The OBR said Healey would meet his most important fiscal rule, balancing day-to-day spending with tax revenues, with headroom of £15bn by 2029-30, down from the £24bn Rachel Reeves had built up in the spring. Healey promised to rebuild the buffer to £22bn by the end of the five-year forecast period, saying: "That is what a buffer is for. Use it when you need it, rebuild it when you can." The Guardian reported that government interest costs rose by £14bn this year alone. Helen Miller, director of the Institute for Fiscal Studies, warned that sticking to tight spending plans could store up trouble, telling The Guardian that next year's spending review "will be a crunch point, and looks very tough for many departments, whose budgets will be squeezed by higher inflation forecasts".Business measures and devolution
Alongside the tax rises, Healey announced several measures intended to cut business costs. The Guardian reported that the rates relief threshold for retail, hospitality and leisure companies will rise from £12,000 to £18,000, funded by higher taxes on gambling and vape shops. Euronews reported that 100% of business rates will be retained locally by the end of the decade, with 20% of business rates revenue going to mayors from next year and a share of income tax receipts following from 2028, under what Healey called a "roadmap to fiscal devolution". Euronews also reported that a First-Time Buyer ISA will replace the Lifetime ISA, with changes to the ISA penalty meaning buyers receive at least their original contributions back if a property costs more than the purchase limit. Healey confirmed changes to the triple lock and the creation of a new national care service, saying the measures would save £15bn a year by the end of the 2030s and £50bn by 2050.What it means for markets
The budget redistributes rather than restructures. Consumer-facing firms, particularly in retail, hospitality and leisure, gain from the higher rates relief threshold and from £100 landing in 20 million households before winter. Banks absorb a time-limited surcharge. Landlords and savers carry a permanent 2p increase, with the OBR flagging a supply response that could feed through to rents. For investors with UK banking or property exposure, the near-term costs are now identifiable, but the second-order effects are not. The OBR's rent warning implies upward pressure on housing costs that could offset some of the consumer benefit of the handout. The spending review next year remains the larger unresolved variable for departments and for any business reliant on public contracts.Sources and References
- The Guardian (theguardian.com)
- Euronews (euronews.com)
