John Healey, the U. K.'s finance minister, unveiled his first fiscal budget on Wednesday, introducing measures to alleviate the cost-of-living crisis while bolstering defense and artificial intelligence initiatives. The budget aims to ease financial pressures on households amid rising inflation and energy costs.
The budget includes measures to support families, such as removing standing charges on household gas heating bills and extending a tax break on electricity until July 2027. Additionally, £100 ($133) checks will be provided to those in the four lowest local housing tax bands, costing the government £2.6 billion. Healey emphasized the need for “radical change on energy” due to the inflationary impact of the U. S.-Iran conflict.
In a move to support small businesses, the budget extends relief from business rates to more companies in the hospitality, retail, and leisure sectors. Other initiatives include £15 million for children's books, funding to reduce homelessness, and support for first-time homebuyers. The minimum wage will rise by 3.9%, and a planned reduction in tax-free savings thresholds has been canceled.
Healey also addressed welfare spending, which has been a contentious issue, accounting for 10.7% of the U. K.'s GDP in 2024/25. He pledged to reform pensions and sickness benefits without compromising the dignity of disabled individuals. His predecessor, Rachel Reeves, had faced opposition over similar plans.
Investments in the U. K.'s artificial intelligence sector were highlighted, with hundreds of millions allocated for AI security and sovereignty. A “covenant” for data centers was announced, requiring them to invest in local communities and protect water supplies in exchange for necessary grid connections.
The budget also includes commitments to economic and military support for Ukraine, reinforcing the U. K.'s commitment to NATO spending targets. Healey confirmed plans to allocate 3.5% of GDP to defense by 2035, with a 3% target by 2030, in response to rising threats.
To fund these initiatives, taxes on banks, gambling businesses, and vape shops will be increased. The bank surcharge will rise by 3%, reaching 6%, a move Healey justified by the significant contributions of the U. K.'s banking sector. Despite initial concerns, shares in U. K. banks rose following the announcement, with Barclays up 3.3%, Lloyds Banking Group 2.6%, and NatWest Group 2.5% higher.
The Office for Budget Responsibility forecast that the government would have £15 billion of fiscal headroom by the 2029/30 financial year. National debt as a share of GDP is expected to rise slightly to 83.8% next year before declining to 81.7% by 2032. The U. K. economy is projected to grow by 1.2% this year, 1% in 2027, and 1.6% in 2028.
Healey assured that his spending plans adhere to fiscal rules requiring day-to-day government spending to be funded by tax revenues, with debt declining as a share of GDP. The budget aims to eliminate the current deficit and achieve a budget surplus within three years.
