Chancellor John Healey stood up at 12:30pm today to deliver his first Budget. Here’s what it means for your pocket, without the jargon.
The big picture
Healey described this as a Budget offering “breathing space” while the UK deals with the economic fallout of the war in the Middle East. Energy prices are pushing inflation up. The Office for Budget Responsibility (OBR) now expects it to average 3.5% in 2027 and only return to 2% in 2028. Real household disposable incomes are forecast to dip slightly in 2026 and 2027.
The Chancellor stuck to Labour’s manifesto promise not to raise income tax, employee National Insurance or VAT. His safety buffer against breaking the government’s own borrowing rules (known as “fiscal headroom”) has been cut to £15 billion, down from £23.6 billion in March. The OBR also nudged its 2026 growth forecast up to 1.2%.
Help with the cost of living
- £100 Household Energy Payment. Up to 20 million households in council tax bands A to D in England will get £100 towards energy bills, paid into bank accounts from January 2027. Scotland, Wales and Northern Ireland receive their share of the funding through the Barnett formula.
- Gas standing charges scrapped. Standing charges will be folded into unit prices from 2027 or as soon as possible after. Low gas users should save, but heavier users could pay more. Electricity standing charges are staying for now, though Martin Lewis reports the Chancellor is exploring them too.
- Electricity VAT relief extended. The VAT cut on household electricity bills now runs until July.
- Fuel duty. The 5p cut is extended until July.
- Minimum wage rise. The National Living Wage goes up 3.9% to £13.20 an hour, helping around 2.3 million workers.
- Mileage rates. Tax-free mileage for miles over 10,000 rises from 25p to 35p.
- Carer’s Allowance. The “cliff edge” is being replaced by a gradual taper.
Pensioners
From April 2027, the full new state pension will rise 3.9% to around £13,036 a year, which tips it over the £12,570 personal allowance. To stop that creating a tax bill, a new pension tax allowance means pensioners with total income up to the level of the full new state pension won’t pay income tax. The relief tapers away on income between about £13,037 and £13,319.
The catch is that tax thresholds remain frozen, so pensioners with private pension income on top may still be pulled into paying more tax over time.
Savers and investors
This is the section most Money Simplified readers will care about.
- The cash ISA U-turn. The planned £12,000 cap on cash ISA contributions for under-65s has been scrapped. The full £20,000 ISA allowance stays as it is.
- A new Starter ISA. The Chancellor will consult the investment industry on a product to encourage first-time investors. Details are thin so far.
- Lifetime ISA penalty cut. From 29 October 2026, the unauthorised withdrawal charge drops from 25% to 20%, so savers get back at least what they put in. A First Time Buyer ISA will replace the Lifetime ISA for new savers from April 2029.
- Tax on savings and property income rises. From April 2027, rates on savings and property income go up a further two percentage points, on top of increases already announced. For landlords that means 24% (basic), 44% (higher) and 49% (additional). The Chancellor says 88% of people won’t pay more tax on savings income.
- No change to tax on dividends or employment income, and capital gains tax rises were reportedly ruled out.
Business, housing and everything else
- Small business rates relief for retail, hospitality and leisure rises from £12,000 to £18,000, taking around 70,000 more firms into the scheme.
- The trading allowance triples from £1,000 to £3,000, and a new young entrepreneurs allowance is on the way.
- The banks surcharge rises by 3 percentage points for 15 months from January, and machine games duty on higher-stake gaming machines rises from 20% to 25%.
- A new “Your First Home” equity loan scheme, backed by £4.7 billion of lending, arrives from spring.
- Defence is fully funded, with a target of 3% of GDP by 2030 and 3.5% by 2035. Mayors will get a growing share of local tax revenue from 2028.
The reaction
Early market reaction was calm: gilt yields ended the speech lower, which suggests investors weren’t alarmed. Commentators welcomed the ISA reversal and the Lifetime ISA fix, while landlords and some savers will feel the tax rises.
Conservative leader Kemi Badenoch said the Budget “does not come close to meeting the mood” given the debt interest bill and tax burden. Others point out that frozen tax thresholds quietly take back some of the benefit of wage rises and the new pension allowance.
What to do now
- Check your energy supplier is applying the electricity VAT relief, and watch for details of the £100 payment.
- Savers: breathe out on the ISA front, but review where you hold interest-bearing cash, as more of it may be taxable from April.
- Landlords: rerun your numbers for 2027/28 with the higher property income rates.
- First-time buyers: if you hold a Lifetime ISA, the lower withdrawal charge starts tomorrow.
This post is general information, not financial advice. Check GOV.UK for the official Budget documents.
