On Wednesday next week John Healey will stand up in the Commons to deliver his first Budget as Chancellor.
The set-piece event will be hugely important for the British economy at a time of profound global economic instability, and represents the biggest test to date of Andy Burnham’s young government, which is currently leading in the polls.
It also carries great importance for the government, which is under pressure to help with the cost of living, but finding its ability to raise extra cash, or spend more, is constrained by already high levels of tax and debt.
As with all Budgets, the impact of Healey’s tax and spending measures will vary significantly depending on how much you earn.
While the Chancellor has had better luck than his predecessor Rachel Reeves in keeping the contents of his red box secret – partly because of the introduction of military-style information security protocols – the outlines of the Budget are starting to become clear.
Here’s what it could mean for you, according to income.
Things that will affect everyone
It’s worth noting at the outset that there are a few fundamentals to this Budget that will affect everyone, regardless of how much you earn.
Burnham and Healey have decided to stick with the tax commitments that Labour made in its 2024 general election manifesto. That means there will be no change to VAT, employee national insurance contributions or the basic, higher and additional rates of income tax.
The Government will also keep the state pension triple lock for the entirety of this parliament, meaning the state pension will rise from £12,548 to £13,036.40 a year in April 2027. Burnham has said that after the next election he will adjust the triple lock to make it less generous, but this will not come into effect until April 2030.
Low income
The official government definition of low income is 60 per cent below the median income of a particular year. The actual figure can change according to household size (ie a single person needs less income than a family of four) – the ONS put the median disposable household income for the poorest fifth of the population at £18,300 a year for the financial year ending in 2025.
Burnham and Healey have repeatedly promised that they will provide “breathing space” on the cost of living on 28 October.
The Chancellor recently said that cost of living support will be “targeted and temporary”, meaning it will be time limited and focused on those on lower incomes.
Low-income households are likely to receive help with energy bills, which have jumped in the wake of the US-Iran war.
The Ofgem price cap – the limit on what suppliers can charge for each unit of energy – rose by 4 per cent to £1,723 a year for a typical household on 1 October, and it is forecast by energy consultancy Cornwall Insight to rise by a further 16 per cent to £1,999 in January.
When Burnham became Prime Minister one of his first moves was to cut VAT on household electricity from 5 per cent to zero from 1 October, saving a typical household about £45 a year. The cut is only due to last until 31 March, and The i Paper revealed last week that Healey is unlikely to extending it beyond this point.
Rather than another universal measure, extra support will be targeted at low income households. The i Paper reported back in August that the Government was likely to use means-tested benefits as the criteria for directing support. This could take the form of boosting the Warm Home Discount, a £150 reduction on bills for around six million households on means-tested benefits, with The Guardian reporting that the Chancellor is considering adding £100 to it.
There will also be news in the Budget for low income pensioners. Because the state pension is set to exceed the £12,570 income tax personal allowance for the first time this April, the Government has said it will act to stop poorer pensioners from being caught in a tax trap.
This will mean that pensioners solely reliant on the state pension will not have to pay income tax on it. While it is still not clear what mechanism will be used to exempt people, the most likely option is that the Government will “opt out” of collecting the small tax sums from relevant pensioners, which would normally be due via HMRC’s “Simple Assessment” process.
Middle income
The Budget’s consequences for middle income earners – the ONS puts the median disposable income at £39,200 – is likely to depend heavily on their behaviour and what they do for a living.
For example, drivers may benefit from action on fuel duty – the tax charged on every litre of petrol and diesel.
A temporary 5p-a-litre cut, first introduced in 2022, is set to be phased out under plans introduced by former chancellor Rachel Reeves, with a 3p rise on 1 January and a further 2p on 1 March.
Governments of all stripes have repeatedly chosen to freeze fuel for years, so it is highly possible that Healey will cancel the planned increases.
Small business owners are meanwhile likely to get a cut to business rates funded by a tightening of tax rules on online retailers. For the first time, online marketplaces such as Amazon, eBay and Temu will be made responsible for collecting tax owed by retailers selling on their platforms in a move which is expected to raise up to £1bn.
A Treasury source told The Times that this would be used to give relief to small businesses on the high street. The source said the Chancellor wanted to “protect local family businesses and the high streets we love”.
“That means having the beauticians and white van drivers of our towns at the forefront of his mind as the Budget draws nearer,” they added.
High income
For those on high incomes – Median household disposable income for the richest fifth of the population is £77,000 according to the ONS – the most important bit of the Budget is likely to be what Healey has decided to leave out of it.
While some leftwing Labour MPs have called for a radical wealth tax, the Chancellor has ignored their advice.
A more plausible revenue raiser would have been for the Government to increase capital gains tax – the tax paid on the sale of assets such as second homes and shares. However, Healey has also ruled out a CGT hike following fears that it could actually result in the Treasury losing money because of people hanging onto assets or relocating abroad to avoid the tax. It’s good news for the high net worth individuals who overwhelmingly pay the tax.
High earners in the banking sector could be indirectly affected by a windfall tax on banks’ profits which is almost certain to come in the Budget. Individuals who own shares in the big four British banks – HSBC, Barclays, Lloyds Banking Group, and NatWest Group – or who invest in them via a FTSE tracker fund, will have already seen a dip in the share prices of these companies since speculation about a tax raid began to mount from August.
Wealthy households looking to access subsidies to replace their boilers with heat pumps will also be affected by the Budget. Ministers are expected to confirm that hundreds of millions will be cut from the £2.7bn Boiler Upgrade Scheme (BUS) to help cover extra defence spending.
Under the BUS, eligible households in England and Wales can receive £7,500 towards an air-source or ground-source heat pump, rising to £9,000 for qualifying homes heated by oil or liquefied petroleum gas. Given these subsidies cover only just over half the cost of the median heat pump, to date much of the BUS money has gone to better-off households.
The final impact on households will depend on the eventual size of the cut, whether grant values or eligibility rules change, and how existing applications are treated, but tens of thousands of households could miss out on thousands of pounds towards installing heat pumps.
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