Healey’s First Budget Raises Taxes on Banks and Savings as Forecasters Trim 2027 Growth

John Healey presented his first Budget as Chancellor of the Exchequer on Wednesday 28 October, setting out a package the Treasury described under the headline “Breathing space for today, fresh hope for the future”. It combines a £100 energy payment for 20 million households, a bigger business-rates break for small shops and restaurants, and an extension of fuel-duty and electricity-VAT cuts with tax rises on banks, savers and landlords.

The Office for Budget Responsibility, the government’s independent forecaster, accompanied the speech with new projections. It upgraded growth for this year, cut it for 2027 and warned that households face a squeeze from higher energy costs linked to the Iran war. The detail matters for savers, employers, landlords and lenders alike, because several of the biggest changes take effect between January and April 2027.

What the Chancellor Announced

Healey said the Budget was designed to use fiscal headroom to absorb the impact of the Iran war on the economy. “Use it when you need it. Rebuild it when you can,” he said of the buffer, according to Global Banking & Finance. He also said the Budget puts the government on track to eliminate the current budget deficit.

On household bills, a £100 Household Energy Payment goes to 20 million households in council tax bands A to D, at a cost of £2.6bn. Gas standing charges are to be removed. The VAT cut on electricity is extended through winter and spring to July, which LBC reported takes £50 off the annual price cap, and the 5p fuel duty cut is extended to July as well.

Wages and work are also covered. The National Living Wage rises by 3.9% to £13.21 an hour from 1 April 2027, and the rate for 18 to 20-year-olds becomes £11.27, according to The CFO. LBC reported that the rise affects 2.3 million of the lowest-paid workers. Self-employed fathers and partners become eligible for paid parental leave for the first time, and the higher business mileage rate rises from 25p to 35p a mile.

Key Dates and Figures

Budget delivered: 28 October 2026. Bank surcharge of 6%: 1 January 2027 to 31 March 2028. Savings and property income tax rise: 6 April 2027. National Living Wage: £13.21 from 1 April 2027. OBR growth forecast: 1.2% in 2026 and 1% in 2027. Fiscal buffer: £15bn in 2029-30.

Who Is Asked to Pay

The bank corporation tax surcharge rises from 3% to 6% between 1 January 2027 and 31 March 2028. The Treasury projects the 15-month increase will raise £1.5bn and has said the period will not be extended, The CFO reported. Qualifying profits above the £100m group allowance face a combined 31% rate during that window, reverting to 28% on 1 April 2028.

From 6 April 2027, income tax rates on savings and property income rise by two percentage points, to 24% for basic-rate taxpayers, 44% for higher-rate and 49% for additional-rate taxpayers. The Treasury says 84% of income taxpayers will be unaffected. Healey said his choices included “Raising revenue from those who can afford to pay”, and LBC reported that there are no tax rises on wages or dividends.

Savers also received some news that was not a rise. The cash ISA limit stays at £20,000 a year after the government dropped a plan to cut it to £12,000, LBC reported. A new Starter ISA is aimed at first-time investors, and a First-Time Buyer ISA will replace the Lifetime ISA.

Help for Small Businesses and Founders

Small Business Rate Relief for retail, hospitality and leisure premises rises from a £12,000 to a £18,000 rateable-value threshold. The Chancellor said about 70,000 more businesses will pay no business rates, and The CFO reported that rates for other retail, hospitality and leisure premises are frozen for two years, while adult gaming centres and vape shops are excluded. Mayoral authorities will receive 20% of local business-rates revenue from next year, rising to full local retention by 2030.

The trading allowance rises from £1,000 to £3,000, and LBC reported a Young Entrepreneurs Allowance to cover a year of living costs for young founders. The government also pledged £20.4bn for the National Wealth Fund and the British Business Bank, and the company share option scheme known as CSOP is set to be rebranded EMI2 from April 2027, with individual limits doubling from £60,000 to £120,000, according to The CFO.

There is also a defence and foreign-policy strand. The Treasury’s Budget page lists a £10bn package of support for Ukraine. Healey said the 3% of GDP defence target date will be 2030, while the NATO goal of 3.5% by 2035 will be set out at next year’s Spending Review, LBC reported.

The bank corporation tax surcharge rises from 3% to 6% between 1 January 2027 and 31 March 2028.

The Forecasts Behind the Package

The OBR raised its growth forecast for 2026 from 1.1% to 1.2%, fuelled by AI investment, the Guardian reported in a piece carried by AOL. It cut 2027 to 1%. The article says the previous figure was 1.5%, while a photo caption gives 1.6%, so the exact size of the cut is unclear. Later years are forecast at 1.6% in 2028, 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031.

Inflation is expected to reach 3.5% this year, up from 2% in the OBR’s March forecast. Real household disposable income is forecast to fall 0.6% in 2027, against a 0.6% rise forecast in March, mainly because of higher energy costs. The OBR’s David Miles said: “It’s a pretty grim picture.” By 2029, the OBR expects real disposable income to be only about 1% above 2019 levels.

Borrowing is forecast at 4.2% of GDP this year, 3.4% next year, 2.9% in 2028-29, 2.1% in 2029-30 and 1.8% in both 2030-31 and 2031-32. Debt is forecast at 83.2% of GDP this year, 83.8% next year and in 2028-29, and 81.7% by 2031-32. AOL reported that Healey said the exchequer was spending £14bn more on debt interest because of higher borrowing costs.

The buffer against the Chancellor’s main borrowing rule is £15bn in 2029-30, rising to £22bn in 2030-31, according to the OBR figures reported by Global Banking & Finance. In the Guardian’s account it is down from £23.6bn left in the spring. The forecaster also modelled energy-price scenarios. A higher and more sustained peak could push next year’s borrowing £17bn above the central forecast, and a lower path could cut it by £12bn.

Reaction From Parties and Industry

Conservative leader Kemi Badenoch said that “next year, Britain will have the highest tax burden in the country’s history”, City AM reported, and that her party would cut as much as £70bn from government spending, half of it from welfare. She also criticised the lack of a clear path to the 3% defence target. John O’Connell of the TaxPayers’ Alliance said, as reported by LBC, that the Chancellor had driven the tax burden to another record high.

Industry bodies were split along the lines of who pays and who gains. David Postings of UK Finance said that increasing bank taxes is not the best way to deliver growth, though he welcomed the promise that the increase is time-limited. Ben Beadle of the National Residential Landlords Association argued the tax rises will push up rents and reduce the supply of rental homes. Michelle Ovens of Small Business Britain welcomed the Chancellor’s recognition of the contribution of the UK’s 5.7 million small businesses, according to LBC.

Healey said in the speech that Britain has beaten the forecasts this year and noted that the Bank of England and the International Monetary Fund had also recently upgraded their growth forecasts. The OBR’s downgrade for 2027 will be the figure most closely watched as the changes begin to take effect.

Sources

• What was in the Budget? What John Healey announced and the UK financial situation, LBC
• UK Budget: Healey Outlines Response to Global Economic Storms, Global Banking & Finance
• OBR slashes UK growth forecast for 2027 despite Healey’s budget measures, The Guardian via AOL
• Banks pay, founders gain: Healey’s Budget for CFOs, The CFO
• Budget 2026 reaction: What have people said in response to John Healey’s first speech?, LBC
• ‘Is that it?’: Badenoch lays into Healey Budget speech, City AM
• Budget 2026, GOV.UK