Chancellor John Healey is set to deliver his first Budget on 28 October, during which he will outline the government’s tax and spending strategy. The announcement comes amid discussion of potential tax increases, though the government faces significant constraints given Labour’s pre-election commitments to avoid raising income tax, National Insurance, and VAT.
The government must balance competing priorities, including providing household support and meeting defence spending commitments while adhering to fiscal rules established by the previous administration. These rules require the government to avoid borrowing for day-to-day public spending and to ensure debt falls as a percentage of national income by the end of the parliamentary term. According to March calculations, the government had a headroom of £23.6bn to work with, though this figure is expected to have declined. Estimates vary, with some analysts suggesting it may have fallen to around £12bn due to increased borrowing costs, while others project a less severe reduction to approximately £20bn.
Several policy areas are expected to feature in the Budget announcement. Bank taxation has been widely anticipated, with financial sector leaders expecting higher levies on their profits or assets. Details on the “Your First Home” scheme, designed to assist first-time property buyers with a 2.5% deposit requirement, are also expected. Capital Gains Tax modifications have been speculated upon, though reports suggest the Chancellor has rejected proposals to align CGT rates with income tax rates.
Additional measures under consideration include making online retail platforms responsible for collecting taxes owed by sellers, with revenues potentially used to reduce business rates for High Street retailers. Fuel duty, which has been frozen since March 2022, remains uncertain, with the Chancellor indicating the Budget is an appropriate venue for addressing rising fuel costs. Energy bill relief for households on certain benefits has also been the subject of speculation. Reports suggest the government has decided against extending the High Value Council Tax Surcharge, known as the Mansion Tax, to properties valued below £2m.
Meanwhile, the UK economy has demonstrated resilience, with recent data showing growth of 0.1% in August following 0.4% growth in July, both outperforming expectations. However, economists anticipate slowdown ahead as elevated energy and fuel prices, stemming from geopolitical tensions affecting global oil markets, continue to impact households and businesses.
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