The 12 months since the last Budget was delivered have seen significant change.
A more challenging global macroeconomic outlook, yet more inflationary pressures and, perhaps least expected of all, a new Chancellor.
In the weeks leading up to the Budget, many pundits expected a radical change from John Healey, but instead he promised measures that would provide “breathing space” to the UK, as it grapples with a challenging economy and a new cost of living crisis.
Given Andy Burnham’s recent commitments to spending in a number of areas, including housing, defence and social care, it was thought that the speech may include a number of tax raids, but the measures announced were more muted.
With a focus on certainty for businesses and individual taxpayers, Healey’s first Budget contained a plethora of small measures to collect tax and generate investment across many different areas.
As he prepared to take his seat at the end of his speech, he confirmed that the Budget would deliver “breathing space now and hope for the future” after delivering updates and measures in the following areas:
- Economic outlook
- Taking on the cost of living crisis
- Taxing success
- A focus on new business
- Pensions and investment reforms
- Final thoughts
Economic outlook
The Chancellor entered Parliament facing a number of challenges, many of which remain outside of his control.
The ongoing conflicts around the world and persistent inflation meant that the Government is walking a fine line between fiscal responsibility and effective levers for driving economic growth.
This was evident in the Office for Budget Responsibility’s (OBR) latest growth figures:
- 2026: 1.2 per cent, (up from 1.1 per cent forecast on the Spring Statement)
- 2027: 1.0 per cent, (down from 1.6 per cent)
- 2028: 1.6 per cent, (equal to 1.6 per cent)
- 2029: 1.8 per cent, (up from 1.5 per cent)
- 2030: 1.7 per cent, (up from 1.5 per cent)
From the beginning of his speech, Healey made it clear that fiscal headroom – the amount available for spending – had fallen from £23.6 billion to £15 billion since March.
As a result, the Chancellor’s war chest was smaller, but still projected to grow.
Seemingly, big announcements on defence spending and further investment in other areas, weren’t included as expected, but will form part of the next spending review.
Taking on the cost of living crisis
This Budget, as the Chancellor announced, was meant to offer “breathing space” and “hope” to businesses and individuals alike.
Announced shortly before the Budget was a number of changes to UK energy costs, with a headline grabbing move to abolish standing charges on gas bills by the end of 2027. This is expected to save the average billpayer £108 a year.
The Chancellor also promised to look into reforming the similar standing charge for electricity bills.
Alongside these measures, it was also confirmed that people living in homes in council tax bands A to D would get a £100 council tax rebate to help with energy costs.
To help manufacturers with rising energy costs, the Government will launch the British Industrial Competitiveness Scheme from 1 April 2027.
This will exempt certain energy-intensive businesses from the indirect costs of the Renewables Obligation, Feed in Tariffs and Capacity Market schemes.
Significant reforms to business rates were also confirmed to help struggling high street businesses.
Pubs, music venues and social clubs will get an additional 20 per cent relief on their business rates bill from 1 April 2027, carrying the full reduction to 35 per cent.
The Government will also increase its Small Business Rate Relief threshold from £12,000 to £18,000 so that a further 70,000 retail, hospitality and leisure businesses pay no business rates at all.
However, many of these businesses will also have to grapple with rising employment costs as a result of the National Living Wage and National Minimum Wage rates rising across the board by 3.9 per cent from 1 April 2027.
The 5p fuel duty cut will also remain in place to help businesses and workers with the sharp increases experienced at the pumps.
Taxing success
With such big spending commitments, tax rises were expected, but what was delivered was nowhere near as significant as earlier speculation had suggested and, in places, remains quite vague.
From April 2027, the lifetime limit for capital gains eligible for Business Asset Disposal Relief (BADR) will be reduced from £1 million to £500,000. This means that any capital gains on an eligible business sale above this new, lower threshold, will be taxed at a rate of 24 per cent for higher-rate taxpayers, instead of 18 per cent enjoyed up to £500,000.
The Chancellor also confirmed plans to review and update the tax rules governing distributions paid by companies to individual shareholders.
The aim is to create a fairer system by limiting arrangements that allow some taxpayers to extract profits in a more tax-efficient manner than others.
Reforms will protect tax treatment for genuine ownership changes, including family business succession, and could offer more generous demerger reliefs.
The Government will consult on the details before implementation in April 2028, but the full details of this change remain sparse.
In a more immediate change, from October 2027, online marketplaces must collect VAT on sales by UK businesses selling more than £90,000 through the platform.
Finally, the Chancellor also announced increases to the rate of Income Tax applied to savings interest and rental income. From April 2027, the tax rate on income from these sources will increase from 20 per cent to 24 per cent for basic-rate taxpayers, from 40 per cent to 44 per cent for higher-rate taxpayers, and from 45 per cent to 49 per cent for additional-rate taxpayers.
Not a new tax, but a new way of paying tax, will also be introduced for Self Assessment taxpayers. From April 2029, they will pay liabilities in smaller, more frequent instalments throughout the year.
A focus on new business
A large element of the Budget was focused on encouraging entrepreneurship and investment in the UK economy.
From small to large, the Government is taking steps to help with the establishment of new businesses.
For those looking into a new side hustle, the Government is tripling the Trading Allowance from £1,000 to £3,000 from 6 April 2027, to help people looking to make additional income.
A New Founders’ Relief will become available from April 2027 offering a 10 per cent Capital Gains Tax rate on up to £10 million of lifetime gains for founders of qualifying high-growth companies.
An additional £15.4 billion will be pumped into the National Wealth Fund, while the British Business Bank will see its own funds increased by £5 billion to provide investment to up-and-coming UK enterprises.
Further devolution was also mentioned during the speech to help regions set their own spending commitments and the Chancellor was keen to flag that the nation was also open to AI, innovation and data centres, with further information expected in future.
Pensions and investment reforms
There were a number of reforms to tax-efficient investments mentioned in the speech and subsequent Budget documents, but headlines were quickly grabbed by the announcement of a new Pension Tax Allowance.
This will be available from April 2027 to April 2030 to pensioners whose income is at or below the full new State Pension to ensure that they won’t be pulled into paying tax by pension increases. This will work on a taper system that keeps pensioners protected, but ensures higher earners still pay.
The previous cut to Cash ISAs for under 65s was also dropped, so the annual tax-free limit will remain at £20,000.
The Government will, instead, explore a new incentive for people opening a Stocks and Shares ISA for the first time.
A new First Time Buyer ISA will replace the Lifetime ISA for new savers from April 2029.
It pays a 25 per cent bonus on homes worth up to £450,000, capped at £20,000.
From 29 October 2026, the LISA withdrawal charge for buying above the price cap falls to 20 per cent.
Final thoughts
Many expected the Chancellor to deliver significant change, but what emerged was a series of smaller measures that seem to have been designed to deliver stability and calm.
The lack of any significant increases in taxation may surprise many, but with rises spread across a wide area and offset by support and savings in others, the Government may be able to stick to its own fiscal rules, while offering help where it is needed most.
