Chancellor of the Exchequer, Rt Hon John Healey MP, has only been in post for 101 days but has already delivered his first Budget Statement.
The first Budget of any new administration is an opportunity to establish a new narrative. Both the new Chancellor and the new Prime Minister have been keen to promise "new hope", "a little breathing space", and "everyday fixes", while talking up fiscal discipline and responsibility. A first Budget is also an opportunity to show that difficult choices are being confronted, decisions taken, rather than deferred, and that the new government truly grasps the scale of the challenges it faces.
The Chancellor's speech focused on small wins for workers, households and small businesses, new incentives for founders and entrepreneurs, limited tax increases on investment income, banks, gambling and the oil and gas sector, and investment targeted at promoting economic growth. Beyond the headlines, however, are more fundamental changes yet to come, not least the ambitious devolution of funding for local and regional government, and a wealth of challenges yet to be addressed.
No Alarms and No Surprises
This was a cautious and prudent Budget, clearly intended to do no harm. Its scale was noticeably smaller, and its focus more surgical on relatively small retail measures, than either of the blockbuster Budgets delivered by John Healey's predecessor, Rachel Reeves, in 2024 and 2025. It was a Budget intended to ensure that the UK economy, showing some early signs of resilience and recovery, was not undermined by policy decisions that might spook the bond markets and jeopardise much-needed economic growth.
The reluctance to make big announcements can be understood as a deliberate choice to preserve short-term credibility rather than a failure of long-term ambition. The most visible consumer-facing measure, a £100 Household Energy Payment for up to 20 million households in council tax bands A-D (funded in part by a temporary doubling of the Bank Corporation Tax Surcharge), encapsulates the Budget's political logic: a targeted, time-limited intervention paid for by a politically safe revenue source, presented as immediate relief without creating a structural spending commitment.
The new Prime Minister has promised to publish a Ten-Year Plan for government in November, alongside a White Paper on Rewiring the State and Alan Milburn's final report on Young People and Work. The next Spending Review, due next year, with consequential decisions on defence spending alongside competing departmental demands, is already looming large.
This Budget appears to have arrived too early for Andy Burnham's government. They want to set out an ambitious new agenda but remain bound by their party's 2024 General Election Manifesto, including promises not to increase headline rates of income tax, employee national insurance, or VAT. All of this means that the big decisions will come later.
A Budget Forged by the Bond Market
The fiscal pressures that shaped this Budget have not been resolved by it. Difficult structural decisions, including how to fully fund defence commitments, eliminate the gap between tax revenues and public spending, and build a more coherent tax system, have been deferred but will still need to be made soon, with diminishing room for manoeuvre.
The Chancellor delivered his Budget Statement against a gloomy backdrop of underwhelming GDP growth, forecast by the OBR at just 1.4% for 2026, and rising inflation driven by ongoing military conflict in the Middle East and Ukraine. Government borrowing has remained stubbornly high despite higher tax revenues, the year-on-year deficit persists, and public sector net debt is forecast by the OBR to reach 95.0% of GDP in 2025-26, rising to 96.8% by 2029-30.
The cost of servicing that debt has been brought into sharp focus. Volatility in the bond markets (the UK's ten-year gilt yield hit 5.4% in October) means the UK now spends roughly £1 in every £12 of public spending on debt interest alone: more than on education, and almost twice as much as on defence. The normal routes out of this dilemma are unchanged: borrow more, raise taxes, or cut spending. None appears attractive to the new government. Boosting economic growth is all they have left, and that requires transformational reform alongside genuinely difficult decisions.
The Main Tax Changes
1. Personal Taxes
The Chancellor has continued the trajectory set by Budget 2025 with a further two percentage-point increase in income tax rates on investment income from 6 April 2027. From that date, savings income will be taxed at 24% (basic rate), 44% (higher rate) and 49% (additional rate), a cumulative four-percentage-point rise since Budget 2025. Property income rates move to the same levels in England, Wales and Northern Ireland. The OBR projects that the savings rate increase will raise approximately £0.6 billion per year from 2028-29 and the property rate increase approximately £0.4 billion per year, net of a modelled behavioural response reducing the combined yield by around £0.3 billion per year.
The Income Tax Trading Allowance is tripled from £1,000 to £3,000 from 6 April 2027, with a matching increase in the Self Assessment reporting threshold, keeping modest trading income out of the tax net.
The Lifetime ISA withdrawal charge for purchases above the £450,000 property price cap is reduced from 25% to 20% with immediate effect from 29 October 2026, and a new First Time Buyer ISA will replace the LISA for new savers from April 2029. The £20,000 annual limit for cash ISA investment will be retained for investors of all ages.
On capital gains, as trailed, headline CGT rates remain unchanged. The Business Asset Disposal Relief lifetime limit will be halved from £1 million to £500,000 from 6 April 2027, but a new CGT Founders' Relief has been introduced, offering a 10% rate on up to £10 million of lifetime gains for qualifying founders of high-growth companies, subject to a technical consultation closing 30 November 2026.
2. Incentives and Remuneration
The Company Share Option Plan will now be referred to as EMI2, with the individual option limit doubled from £60,000 to £120,000 from 6 April 2027, the exercise period extended from 10 to 15 years, and the interaction with the EMI individual option limit removed, so that eligible employees can benefit fully from both schemes simultaneously.
Other measures of note are the changes designed to ease the administration of EMI schemes, including an extension of the period in which options can be exercised following a disqualifying event, and an extension of the exemption in relation to companies owned by employee ownership trusts to companies preparing for EOT ownership.
For employers, mandatory payrolling of Benefits in Kind and the acceleration of the payment timetable for Class 1A national insurance contributions on these benefits need to be taken into account when monitoring business cashflow. These changes will start to take effect from April 2027.
3. Business Taxes
Headline rates of corporation tax (25% and 19%) will remain unchanged in the financial year from April 2028. The writing-down allowance main rate for capital investment will fall from 14% to 12% from April 2027, raising approximately £1 billion per year from 2027-28. To preserve investment incentives, the first-year allowance will simultaneously increase from 40% to 50% for qualifying expenditure on or after 1 January 2027.
The Bank Corporation Tax Surcharge will temporarily double from 3% to 6% for the 15 months from 1 January 2027 to 31 March 2028, raising an estimated £1.5 billion to help fund the Household Energy Payment.
From 1 January 2027, the foreign permanent establishment exemption will be made mandatory, raising around £480 million per year from 2027-28.
Following consultation, as of 6 April 2028, the distributions framework will be modernised to prevent company owners from extracting profits at CGT rates rather than dividend income tax rates, projected to raise £0.8 billion by 2029-30. The changes to the framework are highly consequential for UK shareholders in UK and overseas companies, spanning a range of topics including corporate demergers, loans to participators and foreign company distributions. Technical consultation on the relevant legislation will begin soon and early engagement will be needed to ensure that these wide ranging changes do not adversely affect business transactions and the UK private capital industry.
4. Property and Infrastructure
Retail, hospitality and leisure businesses will benefit from enhanced business rates support. Relief for pubs, social clubs and live music venues rises to 35% from 1 April 2027, SBRR eligibility thresholds are raised, and a two-year real-terms freeze on bills is confirmed for 2027-28 and 2028-29.
A High Value Council Tax Surcharge on English residential properties worth £2 million or more is confirmed from 1 April 2028.
A zero rate of VAT will apply to land sales to registered social housing providers from 1 April 2027, and a new "Your First Home" equity loan scheme will support around 70,000 first-time buyers from April 2027.
5. Private Capital
From January 2029, a new statutory tax regime for foreign sovereign investors will bring certain UK real estate income and gains into the direct tax net for the first time, raising an estimated £0.7 billion by 2029-30. Details are to follow but special provisions will apply to REITs.
In relation to the consultation on the UK's distributions framework, it appears that the Government has taken heed of warnings about the potentially negative consequences for UK investors in funds and intends to provide appropriate carve-outs in the legislation.
Another more general change that will affect private capital managers is the reform of the payment on account rules for income tax self-assessment. Given the practical difficulties and potential cashflow costs of applying these rules to individuals receiving allocations of carried interest, there will be considerable focus from the industry on the design of the legislation.
Our Analysis
The choices made today, and those deferred, carry direct implications for business. Taxes on employers, investors and wealth creators have risen substantially in recent years, with further increases announced on banks, gambling, and those drawing income from savings and property. Today's changes were, in themselves, modest, but the OBR's analysis makes clear that several significant policy commitments remain only partially resolved, and the next Spending Review will force choices that this Budget has carefully avoided. With a significant funding gap still to close before the end of the Parliament, the question of where future revenues will come from has not gone away.
