News story

Budget 2026: Breathing space for today, hope for the future

The Chancellor has unveiled a Budget that gives families and businesses breathing space today, while delivering the big structural changes needed for the future.

• From: HM Treasury and The Rt Hon John Healey MP
• Published: 28 October 2026

• Chancellor John Healey delivers a Budget to give families and businesses breathing space from rising costs, with action on energy bills, fuel duty, wages and the everyday cost of living. 
• Investment to get Britain building and growing, backing homes, high streets and British businesses while strengthening energy and national security. 
• Fair choices maintain economic stability, with the Government cutting borrowing and meeting its fiscal rules with a buffer against uncertainty.

The Chancellor has unveiled a Budget that gives families and businesses breathing space today, while delivering the big structural changes needed for the future.  

Against a backdrop of global uncertainty and pressure on household budgets, the Budget takes action on energy and motoring costs, backs wages and high streets, helps more people onto the housing ladder, and supports British businesses to invest and grow – while strengthening Britain’s national security. 

Built on fiscal discipline, the Budget will provide the bedrock for our economy to continue to grow and deliver the vision that the Prime Minster will set out in his 10-year plan.

Breathing Space 

Families and businesses will get breathing space from rising costs, with major action on energy, driving and everyday bills alongside support for wages, housing and high streets. Alongside immediate support, the Budget fundamentally sets a new pathway for the energy system to deliver cheaper, more secure energy in the long-term. 

Households: 

• Lower energy bills: In 2027 the government is providing a £100 Household Energy Payment for up to 20 million households in bands A to D in England, with funding for similar support provided to the rest of the UK, while the temporary VAT cut on electricity bills will be extended until 1 July 2027, taking around £50 off the Ofgem annual price cap in April 2027. This will be paid for by increasing the Bank Corporation Tax Surcharge from 3% to 6% for 15 months, before ending on 31 March 2028. 

• Long-term energy reform: From 2027 the government will introduce a new comprehensive framework at the spending review that ensures government action drives costs down over the next ten years. Until that framework is in place, no further policy costs will be placed on bills unless they bring bills down or are essential to keep the lights on. We will take that approach in our next renewables auction, Allocation Round 8, to ensure that we only buy cheap clean power that is ready to connect to the grid. The tax on gas bills planned by the previous government to fund hydrogen will be scrapped and planned hydrogen projects will instead be publicly funded. 

• Standing charges: The government will also ask Ofgem to abolish gas standing charges and move them to unit rates, making bills fairer and giving households more control over what they pay. Households not seeing an automatic saving will still have better control over their bills without the worry of affording the standing charge, and the government will set out targeted mitigation in due course. 

• Making energy cheaper and more secure: In 2028-30, the government will reduce Britain’s exposure to volatile international gas prices, ensuring new clean power delivers value for billpayers and delivers cheaper and faster grid connections.  

• Paternity: The government is extending parental pay to more than 160,000 additional parents, including self-employed dads and partners who have previously missed out. 

• Making everyday life easier: 1,000 Post Office parcel drop boxes will be rolled out and 600 branches upgraded by the end of the financial year, while the new Warm Homes loans scheme will help households spread the upfront cost of solar panels, batteries and heat pumps, which together could cut bills by up to £550 a year. 

• Higher wages: On 1 April 2027, the National Living Wage will increase by 3.9% to £13.21 per hour. This uplift represents an increase of £910 to the gross annual earnings of a full-time worker on the National Living Wage. 

• Everyday costs: Tariffs will be removed from more than 100 products, helping lower import costs on family favourites including baked beans and chocolate, alongside tariff cuts on kerosene and fertiliser to support households and farmers facing higher costs.

Support for drivers 

This Budget also supports drivers by extending the 5p cut to fuel duty for a further six months, and deferring the planned Retail Prices Index (RPI) increase, to 1 July 2027, to support households and businesses. 

• Saving money: Taken together, the government’s decisions on fuel duty across this Parliament will save the average car driver £230, the average large goods driver saves £472 and the average heavy goods driver nearly £4000 compared to plans under the previous government, and means petrol and diesel will be 15p per litre cheaper from April 2027.  

• Backing people who drive for work: To put more money back into the pockets of those who rely on their cars for work, we are also permanently increasing the generosity of tax free mileage rates to support around 2 million employees and 1 million self-employed people across the UK. 

• Cheaper EV charging: At the same time, more drivers than ever are going electric – but we know the rising cost of charging vehicles risks slamming the brakes on that progress. That’s why we’re cutting prices at local, lower-powered public chargers to reduce costs for electric vehicle drivers who rely on them – saving them £150 per year on average.

Housing 

• Helping people own a home: The Your First Home Scheme will help 70,000 people onto the property ladder and save first time buyers hundreds of pounds a month. 

• Building more affordable homes: The Prime Minister has been clear on his ambition to deliver the biggest boost to council housebuilding since the post-war period. This budget provides a further £1.5 billion in funding for social and affordable housing, taking total capital investment over the next 10 years above £40 billion. We are also exempting smaller housing developments on brownfield land from Biodiversity Net Gain requirements, making it cheaper and simpler to build. 

• Helping first-time buyers save: A new First Time Buyer ISA will provide a simpler route to saving for a deposit, while from today the Lifetime ISA withdrawal charge will be reduced to 20% so that first-time buyers purchasing a home above the existing £450,000 property price cap will not be penalised. 

• Tackling rough sleeping: We’re backing the ambition to end rough sleeping for good, with a further £432 million over the next two years to help people off the streets.

Business 

• Delivering the government’s commitments on business rates: This year’s Budget backs England’s high streets with a package that means that all retail, hospitality and leisure properties in England will see their business rates either frozen in real terms, reduced, or cut to zero. On top of the extra 20% business rates cut for pubs and all but the largest live music venues, announced in July, this package will take around 70,000 more retail, hospitality and leisure businesses out of business rates by increasing the Small Business Rates Relief threshold. As a result, half of all retail, hospitality and leisure properties will pay no business rates. The Chancellor has also announced a two-year real-terms freeze in business rates bills for all retail, hospitality and leisure properties. 

• Fairly funded: The package will be paid for by tackling non-compliance on online marketplaces, increasing gambling tax on higher-risk machine games, and extending a 1p supplement for businesses that have seen reductions or smaller increases in their business rates bills. 

• Targeting support on thriving high streets: As part of efforts to clean up and strengthen our high streets, vape shops and adult gaming centres will also no longer benefit from certain business rates reliefs. This helps to ensure support is targeted towards the shops, pubs, cafés and other businesses that help local communities thrive. 

• As business rates are devolved in Scotland, Wales and Northern Ireland. Devolved governments will receive Barnett Consequentials which they can use to fund equivalent measures, should they choose to do so. 

• Addressing industrial energy prices: The government is delivering one of the most significant interventions in business energy costs in a generation. From April 2027, the British Industrial Competitiveness Scheme will support over 10,000 eligible businesses in electricity intensive Industrial Strategy sectors and the foundational sectors in their supply chains, cutting their electricity bills by up to 25% and bringing electricity costs closer to other economies in Europe.

Growth in every postcode 

Economic growth is the route to higher wages, stronger public services and greater opportunity. The Budget backs Britain’s industrial strengths, helps businesses start and scale, unlocks private investment and gives places greater control over their economic future. 

• Backing British aerospace: Aerospace is one of the UK’s greatest manufacturing success stories, with a genuine competitive advantage across prime manufacturers and supply chains. A multi-decade cooperation agreement with Rolls-Royce, starting with a joint 10-year, £2.5 billion programme, will develop next-generation gas turbine technology for civil and defence aerospace, supporting 3,300 jobs in the next few years with the potential to create tens of thousands of jobs and billions in further investment across the supply chain for decades to come. This is reindustrialisation in action, backing technology, engineering skills and the UK’s security and success. 

• Life sciences investment: The government is also announcing three new public-private investments in Life Sciences, totalling over £1 billion and backed by almost £70 million in grant funding, delivering on the Modern Industrial Strategy’s commitment to reinforcing the UK’s position as a global Life Sciences superpower: Convatec will invest over £500 million over the next decade in a new global R&D hub in Manchester, Vertex Pharmaceuticals will invest over £300 million in a new facility in Oxford, and Kindeva will invest £200 million in Loughborough.

Backing British businesses to innovate and grow 

The government’s ambition is to make the UK the best place in the world to start a business, scale it, and stay here for the long-term. The Budget supports wealth creation by cementing the UK’s world leading tax offer for founders and their companies, with a step change in how procurement supports the UK innovation economy. 

• Backing entrepreneurs and scaling businesses: We are introducing a new Founders Relief, to encourage founders to scale their companies here in the UK, and when the time comes, reinvest in the next British success story. It will offer eligible founders of high-growth, innovative companies a reduced 10% rate of Capital Gains Tax on up to £10 million of lifetime gains. We are also tripling the trading allowance from £1,000 to £3,000 to support people starting a business; improving venture capital schemes and simplifying access to R&D tax reliefs to help growing firms attract investment and innovate; and we are expanding tax-advantaged employee share schemes to help ambitious businesses recruit and retain talent.   

• Attracting talent: We are committing to reform the visa system to deliver the most pro-business migration system in Europe for highly skilled workers, expanding the High Potential Individual visa to graduates from the world’s top 150 institutions, changing visa salary requirements to help employers across the UK hire the people they need, extending the Graduate visa to two years for eligible universities, and giving the highest-skilled workers longer to find a new job, all helping businesses attract the skills and talent they need to grow. 

• Removing barriers to growth: This Budget also confirms that the government will legislate to make sure that non-compete clauses will no longer be a barrier to hiring for our most promising startups and scaling firms. The government will also consult shortly to understand the wider use of restrictive practices. We will then set out a detailed government position on all these issues in early 2027 in advance of legislating. 

• Backing businesses with finance: It sits alongside action to make government a better customer, making procurement easier for innovative businesses to access, and ensure regulation keeps pace with innovation through new cross-economy powers to enable firms to test, refine and scale new tech faster, while boosting the British Business Bank’s financial capacity, including additional equity capacity and a new venture-debt offer.

Backing Britain to lead on AI 

The Budget also delivers the government’s most ambitious AI package yet, investing £700 million to tackle the risks of AI while unlocking its potential to raise living standards, strengthen national security and support working people across the country. 

• AI security: To ensure Britain is prepared for the challenges AI presents, the package includes an additional £120 million for the AI Security Institute, £40m for a world-first national capability to investigate and respond to agentic security incidents. This is alongside investment in institutions and infrastructure to strengthen resilience against cyber and biological threats, and further funding for the AI Economics Institute to assess the impact of AI on jobs, productivity and living standards. 

• Ensuring sovereign capability: The package also backs the UK to capture AI’s benefits, with an additional £140 million for the Sovereign AI Unit, helping promising UK AI companies scale and maintain a meaningful presence here, and £30m to pilot local partnerships, starting with West Yorkshire Combined Authority, South Yorkshire Mayoral Combined Authority, and York and North Yorkshire Combined Authority, to develop locally-led approaches to AI adoption. 

• Progressing the infrastructure Britain needs: A new Data Centre Covenant will unlock the infrastructure Britain needs to lead on AI while ensuring communities share in the benefits. Strategic projects seeking enhanced government support will be expected to meet stringent tests on community investment, energy costs, supporting British industry and jobs and strengthening our national security.

Backing investment in Britain, with stronger public control 

Good growth starts with taking control of the essentials that people, businesses and places depend on. The government will provide greater strategic direction, certainty and accountability across areas including energy, transport, water and housing, using public investment to unlock private capital, strengthen Britain’s strategic industries and create the conditions for businesses to invest and grow. 

• Investing in Britain’s future: The National Wealth Fund and British Business Bank will receive an additional £20.4 billion, strengthening the government’s two main public finance institutions and their role in supporting reindustrialisation, regional growth and Britain’s strategic industries. 

• Mobilising investment: The National Wealth Fund will receive an additional £15.4 billion, including £2 billion for the new Energy Wealth Fund, allowing it to continue investing and lending at its current rate over the coming years (to be drawn down over and beyond the forecast period), and use public capital to help mobilise private investment in businesses and major projects. 

• Backing businesses to grow: Additional capital for the British Business Bank will enable it to go further in supporting new investment and helping businesses to start, scale and stay in Britain, with a particular focus on improving access to finance for smaller firms. 

• Creating jobs across Britain: Together, the recapitalisation is expected to create and support 140,000 jobs across sectors including advanced manufacturing, AI, defence, technology and clean energy, backing Britain’s industrial strengths and driving growth across the country. 

• Getting major infrastructure built: The government has also committed to fully delivering the findings of the Fingleton Nuclear Regulatory Review, the most significant reset of the UK’s nuclear regulatory system in more than 20 years, and is considering how the ethos and findings of the Fingleton reforms extend to other infrastructure sectors. As a first step, Rachel Skinner CBE chairing a review of rail infrastructure costs that will report in six months. The government will also bring forward legislation at the earliest opportunity to reduce the risk that legal challenges leave essential projects in limbo.

Devolution 

People who know their places best should have more power to shape their future. The Budget sets out a roadmap to fiscal devolution, delivering the biggest transfer of power and resources in a generation and giving local leaders greater control to drive growth in their communities. 

• Greater fiscal powers: All Mayors will receive income tax assignment from 2028, while legislation will give all Strategic Authorities the power to introduce an Overnight Visitor Levy. 

• 10 new devolution agreements: The government is in the final stages of agreeing Mayoral Strategic Authorities for Devon, Plymouth and Torbay; Hertfordshire; Lancashire; Leicester, Leicestershire and Rutland; Stoke and Staffordshire; Surrey; Thames Valley (Oxfordshire, Berkshire and Swindon); and Wessex. There will also be and a single Foundation Strategic Authority for Cornwall, and a Strategic Authority for Kent and Medway. The Government will continue working with all remaining areas including places like Bedford, Central Bedfordshire, Luton and Milton Keynes, where there is broad agreement but not yet local consensus to agree a Strategic Authority as soon as possible, with the aim of achieving full devolution coverage by the end of 2028. 

• This will mean that over 90% of England’s population will have a devolution agreement in place, with the entirety of the North of England covered by mayoral devolution for the first time. The Government is determined to help local leaders deliver good growth immediately and today we are also confirming £285 million in 2027-28, including £120 million of incubator capital funding, for areas transitioning towards a devolution deal or Strategic Authority status. 

• Keeping more money locally: The government intends for local and regional government to retain 100% of business rates income before the end of the decade, with mayors receiving a share of business rates from 2027, replacing grants from central government and giving places greater control over the resources they raise. The government will seek views from local government on how best to achieve this and intends to publish a Call for Evidence later in the year.

Fair taxes and control of spending 

At a time when households and businesses are under pressure, the Budget rejects broad-based tax rises, and is protecting most individuals and businesses from tax increases. It achieves this while ensuring that all policy at the Budget is fully funded over the forecast and raises the revenue to fund commitments on breathing space and energy in a fair, targeted and proportionate way. 

The government will maintain a stable environment for investment, including its commitments under the Corporate Tax Roadmap with the lowest headline Corporation Tax rate in the G7. 

Where the government is asking for more, it is doing so in a fair, targeted and proportionate way, closing loopholes and making sure similar activities are taxed consistently. 

• Temporary contribution from banks: The Bank Corporation Tax Surcharge will increase from 3% to 6% for 15 months, raising £1.5 billion to help fund support for households and businesses, before ending on 31 March 2028. 

• Modernising company distributions framework: Rules governing company distributions will be modernised to prevent complex arrangements being used to extract profits at lower tax rates, while protecting genuine commercial transactions and family and families passing down their business. 

• Levelling the playing field online: From October 2027, online marketplaces will take responsibility for collecting VAT on qualifying sales by UK businesses using their platforms, tackling evasion that undercuts honest firms on the high street and online. 

• Fairer treatment of private hire operators: Responding to inconsistencies in tax treatment that have emerged as the private hire vehicle market has grown, larger operators will be required to account for VAT consistently on the full passenger fare, while smaller and local taxi and minicab firms are protected. 

• Savings and property income: From April 2027, tax rates on savings and property income will rise by a further two percentage points across all bands, this is a fair and progressive approach, and the vast majority of taxpayers will not be affected. 84% of taxpayers will see no increase in their tax bill and generous incentives to save are preserved, including the £20,000 cash ISA limit for everyone. The government will also work with industry to explore creating a new ISA incentive for people investing in a stocks and shares ISA for the first time. The detailed design will be developed with industry. 

• Protecting pensioners: From April 2027, people above State Pension age with total income up to and including the value of the new State Pension will not pay Income Tax thanks to the Pension Tax Allowance. In 2027-28, Around 500,000 pensioners are set to benefit, with around 290,000 paying no tax at all and the remainder receiving a tapered allowance.

Reforming welfare 

The Government is focused on delivering better outcomes for the public while ensuring taxpayers receive value for money, putting investment where it will make the greatest difference and reforming spending where savings can be made responsibly. 

The government inherited a welfare system that has been letting too many people down while driving ever-higher costs. It will rewire the welfare system through structural reform, not crude cuts, providing support for those who need it, helping more people into work and protecting taxpayers’ money. The government will consider carefully the recommendations of the Rt Hon Alan Milburn’s report on young people not in employment, education or training and Sir Stephen Timms’ review of Personal Independence Payments. 

Alongside this, the government is acting now to bring the welfare bill down by: 

• Increasing face-to-face assessments: Face-to-face assessments for health benefits, which were all but ended by the previous government, will be increased – and the government has more than doubled face to face assessment rates since July 2024. 

• Tackling fraud and error: New measures are expected to save an additional £1.4 billion between 2027 and 2032, bringing total savings from fraud and error this forecast to £20 billion. 

• Protecting taxpayers’ money: Entitlement to benefits will be removed from prisoners detained in hospital who have been convicted of the most serious violent and sexual offences.

Strengthening Britian’s Security 

The first duty of any Government is to defend our country. In a more dangerous and uncertain world, the Budget fully funds increased defence investment, sets the direction towards Britain’s NATO commitments and mobilises new sources of private and international finance. 

• Fully funding defence: The Budget strengthens Britain’s national security by fully funding the £15 billion Defence Investment Plan, including £4.7 billion that was previously unfunded. This will be delivered by reprioritising capital budgets across government. Defence spending this year is £14 billion higher than in the final year of the previous government, with the Defence Investment Plan taking spending to 2.7% of GDP in 2027-28. 

• Meeting NATO commitments: Building on this, at the Spending Review next year, the government will also set out the details of how we will meet our NATO commitment of 3.5% of GDP on defence by 2035, with a target date for 3% in 2030. 

• Mobilising investment: Alongside looking across public spending, the government will mobilise private and international finance to support our NATO targets, with the National Wealth Fund and British Business Bank making a new commitment to deploy up to £5 billion over the next 4 years into defence, dual use and other sectors that support our national security, sovereign capability and resilience. 

• Working with allies: Britain will begin treaty negotiations on the Multilateral Defence Mechanism to accelerate defence investment and joint procurement across NATO allies, alongside launching an Innovative Defence Finance Taskforce ahead of the Spending Review. 

• Standing with Ukraine: We are also boosting our support to Ukraine further, underlining the UK’s position as a leading partner amidst illegal Russian attacks. We are providing over £10 billion of additional economic and military support, which will include: 

  • Up to £5.5 billion of World Bank guarantees and £0.5 billion grant contribution to the World Bank International Development Association’s crisis facility to mobilise £1.5bn of support to Ukraine; 

  • £0.5 billion in additional military support to defend Ukraine from attacks this winter; 

  • £3 billion increase in UK Export Finance (UKEF) capacity for Ukraine, prioritised for military support.

Underpinned by fiscal discipline 

Underpinning every measure in this Budget is a commitment to fiscal discipline. By meeting the fiscal rules and maintaining a buffer against uncertainty, the Government is providing the stability that families, businesses and investors need.  

In the face of higher borrowing costs caused by renewed global uncertainty, the Government is using some of the headroom built up precisely for moments like this.  

The stability rule is met with £15 billion of headroom in 2029-30, meaning day-to-day spending is fully funded and borrowing is reserved for investment. Headroom is £9 billion lower than in March, more than accounted for by the conflict’s impact on debt interest costs. Headroom rises again to £22 billion in 2030-31, which will be the target year at the next Budget 

Borrowing, which fell last year, continues to fall over the forecast, while the investment rule is met with headroom of £24 billion in 2029-30, and debt is lower at the end of the forecast than it is today.  

The measures announced at this Budget are fully funded, including through the temporary increase in bank taxes to help pay for household energy support, while departments are reprioritising existing budgets to fund the necessary increase in defence spending.  

Through fair choices today and investment in Britain’s future, this Budget delivers breathing space now and fresh hope for the years ahead.