UK Budget (28 October 2026)

 

My view of today’s UK Budget (28 October 2026)

Chancellor John Healey’s first Budget, delivered under Prime Minister Andy Burnham, is a cautious, defensive package shaped primarily by the economic fallout from the ongoing Middle East conflict (particularly higher energy prices and borrowing costs linked to the Iran situation). It prioritises short-term “breathing space” for households over major structural reform or big new growth-driving investment.

Key verified elements

The Office for Budget Responsibility (OBR) forecasts show:

• Growth of 1.2% this year (slightly upgraded), then only 1% next year (downgraded from the previous 1.6% outlook), before recovering to 1.6–1.8% in later years.
• Extra £14 billion in debt interest costs this year due to higher borrowing rates.
• Fiscal headroom reduced to £15 billion against the stability rule in 2029/30 (rising to £22 billion the following year).
• Borrowing still on a declining path (4.2% of GDP this year, falling to 1.8% by the early 2030s) and debt projected to ease gradually from around 83% of GDP.

Main measures announced include:

• A £100 “Household Energy Payment” for around 20 million households in council tax bands A–D (costing £2.6 billion), paid directly into bank accounts.
• Scrapping gas standing charges (expected to save many households around £45 a year on average).
• Extending the VAT cut on electricity bills until July 2027 (roughly £50 off the annual price cap).
• Extending the 5p fuel duty cut and related reliefs until July 2027.
• National Minimum Wage / National Living Wage rise of 3.9%.
• Reversing the previous plan to cut the cash ISA annual limit (keeping the full £20,000 allowance).
• Higher threshold for small business rates relief (taking more high-street firms out of rates).
• Temporary extra bank surcharge (additional 3% for 15 months) to help fund the energy support, plus rises in certain gambling duties.
• Extra housing funding (£1.5 billion for social and affordable homes) and a stronger push on fiscal devolution (more revenue powers and funding for mayors and local authorities).

There are no broad-based tax rises on income tax, National Insurance or VAT for working people.

Assessment

This is a pragmatic response to an external shock rather than a transformative Budget. The energy cost-of-living package is targeted and politically sensible: it cushions lower- and middle-income households without large permanent increases in borrowing or across-the-board tax hikes. Maintaining the overall fiscal rules path (even with thinner headroom) is fiscally responsible given the higher debt-interest bill. Reversing the cash ISA cut and easing some business rates pressure are practical corrections.

However, the underlying picture remains challenging. UK growth forecasts are still weak, productivity problems are unaddressed, and the thinner fiscal buffer leaves less room for future shocks. Many of the energy measures are temporary or shift costs (standing charges removed from bills but recovered elsewhere). Devolution is emphasised, consistent with the political direction of the government, but the long-term growth and energy-price structural issues receive limited new solutions.

In short: a steady, damage-limitation Budget that prioritises household protection and fiscal continuity amid global uncertainty. It is reasonable under the circumstances, but it does not fundamentally alter Britain’s low-growth, high-debt trajectory. Markets and independent analysts will now focus on whether the thinner headroom and temporary tax measures prove sustainable if energy prices or borrowing costs remain elevated.