Chancellor John Healey has delivered his long-awaited first Budget, with a raft of changes announced.
Such measures include a U-turn to a planned cut on cash ISA allowances, £100 of energy support to some households and extra taxes on banks.
Below, we run through all the key changes you need to know, how the policies will work, and how they will impact your finances.
£100 payments straight into bank accounts for 20m households
The Chancellor said that he would be making a £100 payment to all households in council tax bands A to D for England – and similar funding for other nations – to help with energy bills.
The payment will go to 20 million households – and direct into people’s bank accounts, in theory giving those who don’t need help on their energy bills, an extra £100 to be spent as they wish.
The money will help cover rising energy bills this January. Projections suggest that the energy price cap will rise in the new year, moving annual bills for a typical household from £1,723 a year to £2,188 a year.
Many would have hoped the help will have been means tested, and handed to the most vulnerable in society, such as pensioners or those on benefits.
A rise to the Warm Homes Discount scheme, for those who need the most help with their bills, was widely considered a viable option prior to the Budget.
Cash ISA U-turn – and new ‘Starter ISA’ created
At the moment, people can put £20,000 a year into ISAs – stocks and shares or cash – and the returns or interest are entirely tax-free.
From next April, under plans announced by ex-chancellor Rachel Reeves, the annual cash ISA limit for those under 65 was set drop to £12,000, as part of a government move to encourage investment in stocks and shares.
This move has now been scrapped.
Instead, Healey said he would work with the financial sector to create a new “starter ISA”, for first-time investors.
Tax hikes on landlords and savers
Healey is increasing the tax on income from property and savings by another 2 percentage points from April 2027.
These were already being raised by 2 percentage points at that time.
The move will take tax on savings and rental income to 24 per cent for a basic rate taxpayer – compared to 20 per cent for income earned from work.
For a higher rate payer, the figure will be 44 per cent, compared to 40 per cent, and for an additional rate payer, it’s 49 per cent compared to 45 per cent.
State pension tax relief for poorest pensioners
The personal allowance – the amount people can earn before paying income tax – has been frozen at £12,570 since 2021, and the freeze was extended to 2031 by former chancellor Rachel Reeves at last year’s Budget.
This creates a so-called “stealth tax” as salaries grow to keep up with inflation, causing workers to pay more in income tax and national insurance (NI) over time. This will continue unless a change is made in the Budget on 28 October.
The full state pension is set to rise by £489 to £13,036 next April, which is above the £12,570 personal allowance threshold – meaning more pensioners living on the state pension alone would have faced tax bills.
At the Budget, the government confirmed that there would be an effective allowance increase for penioners.
Pensioners with income up to the value of the full new state pension will not pay income tax “in this Parliament”, Healey said, suggesting that from April, pensioners with income worth less than £13,036 a year will not pay income tax on their payments.
Tax rises for banks… but only until January 2028
Earlier this year, Healey called banks part of “the crown jewels” of the UK economy, but in recent weeks there had been multiple rumours that he may U-turn and tax banks more.
Former Conservative chancellor Jeremy Hunt reduced a surcharge that banks pay on corporation tax, from 8 per cent to 3 per cent, back in 2023.
Healey said he would change this to 6 per cent – a 3 percentage point rise.
But this will be time limited, and will last for 15 months from January.
Boost for motorists as fuel duty hike delayed
Since 2022, there has been a temporary 5p cut to fuel duty in place, which has been extended multiple times.
It was due to end on 1 January 2027, with a planned 3p per litre increase and another 2p increase on 1 March 2027.
But Healey announced the temporary cut will be extended to July.
New scheme for first-time buyers and first-time buyer ISA
A new scheme, known as Your First Home, was announced at Labour conference last month, and more detail was provided at Budget.
First-time buyers who use the scheme will be able to purchase a new-build with a 2.5 per cent deposit backed by a 20 per cent equity loan.
Chancellor John Healey will set the earnings cap for households at £110,000 for applicants outside London, and £140,000 for buyers in the capital.
Healey announced that the Lifetime ISA (LISA) would be replaced by a first-time buyer ISA – which was recently consulted on – but that in the meantime, the government would get rid of the LISA penalty.
LISA holders face a 25 per cent penalty if they are using the money for anything other than retirement, or to buy a first property worth under £450,000.
As this applies to the entire withdrawal amount – your savings plus the government bonus – it results in you losing the entire bonus plus 6.25 per cent of your own original personal savings.
For example, if you saved £1,000 and got a £250 bonus, you would have £1,250 total. If you then withdrew it and closed the account, the 25 per cent penalty would be £312.50. So you would get £937.50 back.
But Healey said if people were buying a home worth over the threshold, they would now get back at least what they put in.
More taxes on gambling
Healey said he would be increasing Machine Games Duty. The tax is calculated on takings – the cash put into the machines minus payouts – from things like fruit machines and slot machines.
He said the rate would go from 20 per cent to 25 per cent for higher stakes machines, but that pubs and seaside arcades would be protected.
Standing charges abolished on gas bills and extending VAT cut on electricity bills
Standing charges on gas bills will be scrapped from next year for around 23 million homes, the Treasury announced before the Budget.
The charges are a fixed daily fee added to bills, regardless of how much gas a customer uses, and cost around £108 per year for a typical household.
The Treasury said Chancellor John Healey will today ask regulator Ofgem to remove standing charges “in 2027 or as soon as possible after” and that similar changes to electricity standing charges would follow.
A cut to VAT on electricity bills that was set to end in April will now be extended until July
Minimum wage rise
The minimum wage for workers aged 21 or over is set to increase by 3.9 per cent from April, bringing it to around £13.20 per hour.
Workers aged between 18 and 20 years old will see their pay rise by 3.9 per cent as well, meaning it will go from from £10.85 to £11.27.
Small business rates relief
Healey announced an increase in the threshold for small business rate relief for retail hospitality and leisure businesses from £12,000 to £18,000.
The £12,000 threshold is based on your property’s ‘rateable value’ – an official estimate of a commercial property’s annual open-market rental value.
He said this means 70,000 businesses will be taken out of paying business rates altogether.
End to carer’s allowance cliff edge
Carer’s allowance is a benefit paid to those who spend at least 35 hours a week caring for a person receiving a qualifying disability benefit. It is worth £86.45 a week and can be claimed by any carer aged 16 or older.
However, at present, claimants lose eligibility if they take a break from caring or exceed the earnings limit, which is currently £204 per week.
Most benefits have an earnings taper, which means that payments are gradually reduced as income rises. But carer’s allowance has a “cliff edge”, which sees claimants losing the whole £86.45 if they exceed the earnings limit by a single pound. Claimants also become ineligible if they study for 21 hours or more per week.
The Budget announced an end to this. Instead, only £1 of support will taper away for every additional £1 earned, meaning carers are no longer left financially worse off for working additional hours or receiving a pay rise.
New entrepreneurs’ relief
The government will launching a new young entrepreneurs’ allowance, covering a year of living costs for young founders “while they turn their ideas into businesses”.
He also announced a “founders’ relief”, meaning founders will pay capital gains tax on the first £10m of gains.
Capital gains tax – a tax paid on growth in the value of shares on second properties – is usually 18 per cent for basic rate taxpayers and 24 per cent for everyone else.
UK’s financial buffer is down
John Healey said the Treasury’s headroom was going down from £23bn to £15bn.
This is headroom is the financial buffer the government has under its own borrowing rules. Once it runs out of this buffer, it fails to meet its rules, which can mean losing the confidence of financial markets.
Healey said the buffer would reduce because of the inflationary impact of the war in the Middle East. Higher inflation can increase borrowing costs, because investors demand a better return for lending money to the government.
“This is what a buffer is for – use it when you need it, restore it when you can,” Healey said.
Experts warned there were downsides to reducing the headroom.
“Lower headroom means less insurance against future bad news”, explained Helen Miller, director of the Institute for Fiscal Studies (IFS).
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