John Healey’s budget shifts cost to banks, offers £100 relief to low-income households

Chancellor John Healey presented his first budget on Tuesday, framing the economic outlook as a response to global instability caused by the Middle East war. He described the situation not merely as headwinds, but as global economic storms that require immediate action to protect consumer wallets.

The centerpiece of the package is a £100 payment for 20 million households in council tax bands A to D. This measure will cost the government £2.6 billion. Healey also extended the existing VAT cut on electricity bills until next July and cancelled the fuel duty increases that his predecessor, Rachel Reeves, had previously planned.

To fund these measures, Healey proposed doubling the additional levy on bank profits from 3% to 6% for a 15-month period starting in January. Industry analysts had anticipated a higher rate of 8%. Healey also announced a 2 percentage point income tax increase for landlords and savers, a move that caught some observers off guard. Bank shares reacted positively to the news, with NatWest and Standard Chartered shares rising by more than 4%.

The economic backdrop for the budget has deteriorated since the spring statement. The Office for Budget Responsibility has lowered its growth forecast for next year to 1%, down from 1.6%. Healey attributed the worsening outlook to the war in Iran, which he said is expected to add £14 billion to the government's interest costs due to higher inflation.

Despite the rising costs, Healey stated that Labour’s deficit-reduction plans remain on track. The headroom against the first fiscal rule, which requires balancing current spending with tax receipts by 2030-31, has narrowed to £15 billion from the £24 billion available in March. Healey projected that this buffer would be rebuilt to £22 billion by 2031.

The budget includes specific relief for small businesses and retail operators. The business rates relief threshold for firms in retail, hospitality, and leisure will rise from £12,000 to £18,000. This change is funded by higher taxes on gambling and vape shops. Healey also outlined steps to tackle homelessness, including cheaper borrowing options for councils and VAT relief on land sales to social housing providers.

Looking ahead, high oil prices are set to push the energy price cap higher in January. Healey signaled a longer-term overhaul of energy billing structures, describing it as a new cost control framework. The government will also confirm the My First Home mortgage scheme for first-time buyers, a plan first introduced at Labour's party conference in September.