John Healey sets out Budget 2026 household relief and fiscal plans

OBR forecasts lower UK borrowing as debt interest rises by £14bn

Chancellor John Healey set out his first Budget 2026 on October 28, combining immediate help for household energy bills with fiscal rules and public borrowing and debt forecasts. He said fiscal discipline was his first priority and pledged that the government would meet the rule requiring day-to-day spending to be covered by tax receipts. Healey entered the statement under pressure to increase defence spending, help consumers manage the cost-of-living crisis and give local leaders more money and power.

He opened by saying his budget was “delivered at a time when global uncertainties and pressures are swirling worldwide and hitting people here at home.” He said the government would use a new approach to steer Britain through “global economic storms” and give people fresh hope for the country’s future. Healey called it an honour to deliver a budget as chancellor and paid tribute to Rachel Reeves’s fiscal discipline and difficult decisions.

Healey said trade tensions and the war in Iran were acting as drags on global economic growth. The UK did not want the war, he said, and he attributed increased costs for British families to higher energy costs and higher interest rates. The government will spend £14bn more on debt interest this year.

Peter Walker, the Guardian’s senior political correspondent, said Healey was offering “breathing space” on the cost of living and a break from the Keir Starmer era, while noting that the speech mentioned “global uncertainties.” The Guardian’s accompanying political analysis said those uncertainties might make Healey’s tweaks and changes “slightly moot.” The analysis also noted a long section on the Iran war and that the UK did not seek the conflict.

The government’s investment rule requires government debt, defined as public sector net financial liabilities, to fall as a percentage of GDP in the third year of the forecast. According to the Office for Budget Responsibility, the government’s forecaster, the government will have £15bn of headroom in 2029-30 and £20bn in 2030-31.

Government borrowing is forecast at 4.2% of GDP this year, 3.4% next year, then 2.9%, 2.1% and 1.8% by 2030-31.

Government debt is forecast at 83.2% of GDP this year and 83.8% next year, followed by 83.1%, 82.3% and 81.7% in subsequent years. Walker called the passage “a statistics-rich part of the speech” largely for economists and MPs. He said Healey was at pains to argue that the government was treating the deficit seriously, a key element in trying to shape reaction. Walker also noted the speech’s first joke, about Liz Truss and her mini budget, which he said had become almost as traditional as a fuel-duty freeze.

Healey said predictions of slowing growth were wrong. The OBR forecasts GDP growth of 1.2% this year, 1% next year, 1.6% in 2028, 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031. In March, the OBR had projected 1.1% growth in 2026, rising to 1.6% in 2027 and 2028 before dropping to 1.5% in 2029 and 2030.

Cheaper energy was Labour’s stated priority. Healey said the government would remove a levy used to fund hydrogen from bills, move older renewables onto fixed-price contracts and extend a VAT cut through the winter and spring to July. The VAT change will take £50 off the annual price cap.

Healey also confirmed that the government would abolish standing charges on gas bills for 23 million homes. The government said the change would save two-thirds of households an average of £45 a year. Separately, 20 million households in council tax bands A to D will receive a one-off £100 energy payment paid directly into bank accounts, at a cost Healey put at £2.6bn.

Healey described the approval of the Jackdaw gas field as a “pragmatic, commonsense decision” and said the government remained “unshakeably committed” to net zero while pursuing cheaper energy based on clean sources. Walker said the decision was not popular with all Labour MPs and described the speech as a political balancing act with cost-of-living relief at its core. Walker called the standing-charge plan “much-trailed” and described the payment as “a small-to-mid-sized rabbit of a one-off £100 energy payment for smaller homes.”

Fuel duty will be frozen for the 16th year in a row. The Guardian’s commentary noted that government forecasts over that period assumed fuel duty would rise in later years to raise more cash, only for the freeze to continue. Walker called the freeze “the least surprising part of every recent budget.” Healey raised the higher mileage rate for people who use their cars for work from £0.25 to £0.30 per mile. He also said the government would remove import tariffs on more than 100 products, including baked beans, chocolate and gherkins, to reduce shop prices, a measure trailed before the budget.

Self-employed fathers will become eligible for paternity leave pay for the first time, Healey said.

The chancellor also raised the threshold for small business rate relief from £12,000 to £18,000, giving a tax break to 70,000 smaller firms. Adult gaming centres and vape shops will not qualify for business rates relief.

Healey raised the machine game duty on higher-stakes machines from 20% to 25%. He also said online marketplace sellers would be targeted to ensure they could not get around VAT. Walker said the state of local high streets was a “hugely common complaint among voters and MPs alike,” even if the causes of decline were many and long-term. He said more help with business rates for shops and hospitality businesses would be “welcome and popular,” and that few people outside the gambling industry would complain about paying for it through higher taxes on gambling.