John Healey, the U. K.'s finance minister, unveiled his first fiscal budget on Wednesday, focusing on defense, artificial intelligence, and easing cost-of-living pressures. The budget, part of the Autumn Budget, aims to address rising costs without unsettling financial markets, which reacted positively to the announcements.
With inflation reaching 3.5% this year, driven by surging fuel costs, the U. K. faces significant economic challenges as a net energy importer. The Bank of England is expected to raise interest rates soon, and government borrowing costs have increased sharply. Prime Minister Andy Burnham's government had pledged to alleviate these economic pressures, and Healey's budget aims to provide relief.
Key measures include removing standing charges on household gas heating bills and extending a tax break on electricity for millions of households until July 2027. Additionally, £100 ($133) checks will be distributed to those in the four lowest local housing tax bands, costing £2.6 billion. Healey also announced the removal of tariffs on over 100 grocery products and extended small business relief from business rates to more companies in the hospitality, retail, and leisure sectors.
Beyond these measures, the budget allocates £15 million for children's books, funds to reduce homelessness, and support for first-time homebuyers. The U. K.'s minimum wage will rise by 3.9%, and a planned cut to tax-free savings thresholds has been canceled. Healey also emphasized reforms to pensions and sickness benefits, aiming to reduce the welfare bill, which has been a contentious issue.
The budget also highlights investments in the U. K.'s artificial intelligence industry. Healey announced hundreds of millions of pounds for AI security and sovereignty, emphasizing the state's role in this sector. Data centers will be required to invest in local communities and protect water supplies, in exchange for necessary grid connections and onsite generation capabilities.
In a significant move, the budget includes £10 billion in economic and military support for Ukraine, sending a clear message to Moscow of Britain's commitment. Additional funding will bolster defense to meet NATO spending commitments, with plans to spend 3.5% of GDP on defense by 2035 and a target of 3% by 2030.
Healey's budget adheres to fiscal rules established by his predecessor, ensuring that day-to-day spending is funded by tax revenues and that debt declines as a share of GDP. The Office for Budget Responsibility forecasts £15 billion of fiscal headroom by the 2029/30 financial year, with national debt expected to decline to 81.7% of GDP by 2032.
To fund these initiatives, Healey announced tax increases on banks, gambling businesses, and vape shops, while avoiding tax hikes on wages or dividends. The bank surcharge will rise by 3%, reaching 6%, a move that saw shares in U. K. banks rise. Barclays shares increased by 3.3%, Lloyds Banking Group by 2.6%, and NatWest Group by 2.5%.
Despite concerns from the banking sector, including JPMorgan Chase CEO Jamie Dimon, who had previously lobbied against additional taxes, the scale of tax hikes was less severe than anticipated. JPMorgan Chase expressed commitment to the U. K. despite the tax changes, although it criticized the decision to single out the banking industry for additional taxes.
