Chancellor John Healey has delivered the Autumn Budget today, saying it was for the "working people of Britain, for British businesses big and small", set against a backdrop of "global economic storms".
In the first Budget of the Burnham government, which has been in office for just over three months, Healey said the spending plans are designed to give the country "breathing space" while maintaining fiscal discipline.
He also paid tribute to predecessor Rachel Reeves, who he said as chancellor "brought fiscal discipline to this country". He added that his Budget abides by the two fiscal rules established by Reeves: by the end of this parliament, the aim is not to borrow to fund day-to-day public spending and to get government debt falling as a share of national income.
Fiscal rules and economic health
The government is on track to meet its 'stability rule', the requirement for day-to-day spending to be covered by tax revenues by 2029-2030, Healey said. He added that this will lead to £15bn of fiscal headroom by the end of the period, although this is down from £23.6bn as forecast in March’s Spring Statement.
The Office for Budget Responsibility (OBR) also forecasts that government borrowing will fall to 1.8% of GDP by 2030/2031, down from 4.2% in 2026-2027 to 3.4% in 2027-2028.
Net financial debt as a percentage of GDP is now forecast to reach 83.2% in 2026/27 and 83.8% in 2027/28, before falling to 83.1% in 2029/30. This is higher than the forecast in March. This would meet the government's 'investment rule'.
Healey said the OBR has lowered its forecast for GDP growth for 2027 to 1%, down from 1.6% previously. The new forecast, which is a little below the IMF’s recent numbers, reflects the higher energy prices being caused by the war in the Middle East.
The OBR has lifted its GDP forecast further out, however, tipping growth to reach 1.6% in 2028, 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031.
Cash and ‘starter’ ISA
Healey confirmed he will “not go ahead” with cuts to the tax-free amount that people can put into a cash ISA. The limit will stay at £20,000 a year, “tax-free for people of all ages”.
The announcement came alongside a rise in the rates of tax on income from property and savings of two percentage points from April 2027, with no change to tax on dividend or employment income. The chancellor said 88% of people will pay no more tax on their savings.
The package was described as a “new approach” to encourage people on ordinary incomes “to save and to invest”, with the government working with the sector to create a new starter ISA to “reward first-time investors”. No further detail on the starter ISA was given in the speech, including who will be eligible and what the reward will be.
The first-time buyer ISA will replace the Lifetime ISA and Healey said he is “dealing with the LISA penalty”, so that if the home someone wants costs more than the limit, they “will get back at least what you put in”.
Currently, a LISA pays a 25% government bonus on up to £4,000 a year, but if the money is withdrawn for anything other than a first home costing £450,000 or less (or after age 60), a 25% charge applies to the whole pot, which means savers lose the bonus plus £250 of every £4,000 they paid in.
Additionally from next spring, a new equity loan scheme will be backed by £4.7bn of government-backed lending. It is aimed at first-time buyers “who don’t have the bank of mum and dad behind them”. Noting that two in five young people are paying more than a third of their income on rent while watching the prospect of buying slip away, the chancellor announced an additional £1.5bn for the social and affordable housing programme, taking the total government commitment to £40bn.
Cost of living and energy prices
Healey also unveiled several measures to alleviate the cost of living crisis, caused by the higher energy and food prices following disrupted supply chains and conflict in the Middle East and Ukraine.
The VAT cut on electricity from 5% to zero will be extended through the winter and spring to July, which the chancellor said will take £50 off the annual price cap. This was expected to end in March 2027.
Earlier today, it was also revealed that standing charges will be removed from household gas bills and replaced with fixed costs paid on the unit rate. This will mean 60% of households will save an average of £45 per year, the government estimates.
The chancellor said "similar reforms" for electricity bills will follow.
The Budget also includes a £100 'household energy payment' for 20 million households in council tax bands A-D this winter. This rebate will be paid directly into bank accounts, at a cost of £2.6bn to the Treasury.
Healey said this will "take the pressure off in the coldest months and see people through to the spring".
What’s more, the 5p fuel duty cut has been extended until July 2027 while, for those who need cars for their work, the higher mileage rate will be increased from 25p to 35p per mile and the increase to the standard mileage rate will be made permanent.
As previously announced, tariffs will be removed from more than 100 products, helping lower import costs on family favourites including baked beans and chocolate, while tariffs on kerosene and fertiliser will be cut to support households and farmers.
Pensions
Healey used today’s Budget to put state pension policy on what he described as “sustainable footing”, reiterating the recent announcement that the triple lock will be adjusted to a modified mechanism from 2030.
Under the triple lock, the state pension increases every year by the highest of 2.5%, inflation or earnings growth. From 2030, the state pension will rise by the highest of 2.5%, inflation or the amount needed to maintain its value relative to earnings – effectively moving from a triple lock to a 2.5x lock.
The state pension is set to rise by 3.9% to over £13,000 next year, moving above the £12,560 personal allowance threshold for the first time. Healey has also confirmed that pensioners whose only income is the full new state pension will not pay income tax on it for the rest of this parliament.
The chancellor announced a clampdown on people living abroad accessing the state pension “on the cheap”, though limited detail has been provided as of yet.
The government is further scrapping a rule that meant pension death benefits became taxable if they took more than two years to be paid out.
Separately, the Pensions Commission’s final report will be published by February next year, outlining its recommendations on ensuring the private pensions system delivers fair and sustainable retirement outcomes.
Defence and reindustrialisation
Pointing to the conflict in Ukraine, Healey – formerly defence secretary in the Starmer administration – noted that demands on defence are rising. He committed to "fully funding" the defence investment plan, which calls for an additional £15bn in military spending until 2029-2030.
Details of how the government will meet its NATO commitment to spend 3.5% of GDP on defence by 2035 will be set out in the spending review next year, although a new Innovative Defence Financing Taskforce was announced to maximise the contribution of private and international finance to UK defence.
Over £10bn of additional financial support has also been earmarked for Ukraine, which goes alongside the current commitment of £3bn a year in military support until 2030-2031 or for as long as needed.
The National Wealth Fund and British Business Bank are to receive £20.4bn of additional support, to be channelled into areas such as defence, AI and renewable energy.
The Budget includes a commitment for the two entities to deploy up to £5bn over the next four years into defence, dual-use and other sectors that support our national security, sovereign capability and resilience.
As part of the government’s strategy to reindustrialise the UK and create thousands of jobs in high-value manufacturing, Healey said £2.5bn will be invested in Rolls-Royce’s bid to develop an engine for short-haul aircraft.
Tax changes for banks, gambling and vape shops
UK banks, which have enjoyed a strong rally over the past few years thanks to higher-for-longer interest rates, are firmly in Healey’s crosshairs.
The chancellor said “I celebrate and I am grateful for the role you [banks] pay” but amid the “global economic storm, I am looking to our banks to fund breathing space”.
As such, banks will face a temporary increase in the corporation tax surcharge rate, from 3% to 6%. Healey emphasised it would be a temporary measure, coming into play from January 2027 and lasting for 15 months. This is paid on top of the 25% corporate tax rate, with the additional money raised contributing to the £2.6bn household energy payment scheme.
Healey also reached into the pockets of the gambling and gaming industries, raising Machine Games Duty on higher-stake machines from 20% to 25% from 1 April 2027, while removing business rates relief for vape shops and adult gaming centres.
The additional revenue will fund a freeze in business rates for retail, hospitality and leisure properties.
Artificial intelligence
Healey said "nowhere is the necessary role for the state clearer than in artificial intelligence", setting out a "British way" built on security and sovereignty. The Budget backed AI safety and security with an extra £500m and funds a "first of its kind" sovereign AI unit that will channel government investment into strategic British AI firms.
The chancellor also launched a British 'data centre covenant', whereby data centres will have to meet "strict tests" on creating local jobs, investing in communities and protecting local water supplies.
In return, critical data centres will get the grid connections they need and, where necessary, will be allowed to build on-site generation while they wait. Healey said the aim is to keep sensitive data, such as that generated by the NHS and the armed forces, in the UK.