On Wednesday 28 October, Chancellor John Healy delivered the first Budget of the Burnham government. Healy set the UK’s economic outlook by highlighting that GDP growth has been stronger than forecast and that Britain’s economy grew the fastest of the G7 countries in Q1 and Q2, along with the US. He also stressed the economic consequences of conflicts in the Middle East and of what he described as the illegal invasion of Ukraine, arguing that these geopolitical tensions have driven up costs for families and businesses and that the Budget, in response, takes action to create breathing space now while shaping structural changes for the future.
The Key Points in the Budget
Fiscal Outlook and Government Spending
Stressing fiscal discipline, Healy argued that the fiscal day-to-day spending rule will be covered by tax receipts, whilst also rejecting broad-based tax rises. Meanwhile, Healy turns to the banks for a surcharge increase from 3% to 6% of their profits for 15 months, starting in January 2027. He also proposes a 2% increase in tax on property and savings income, while still supporting tax-free savings by reversing the previous governments’ plan to cut the cash allowance on Individual Savings Accounts (ISAs).
Further, under the investment rule, government debt – defined as public sector net financial liabilities – must be falling as a percentage of GDP in the third year of the forecast. This year, government borrowing will be 4.2% of GDP. Next year, government borrowing is forecast to fall to 3.4%, then 2.9%, 2.1% and 1.8% by 2030-31, the Office for Budget Responsibility (OBR) says. Meanwhile, government debt is forecast to be 83.2% of GDP in 2026, with the UK spending £14bn more on debt interest, 83.8% next year, then falling to 83.1%, 82.3% and 81.7% in 2028-2030.
Wages and Cost of Living
Healy promised measures to create breathing space for UK families and ease the cost of living. As in the previous 16 years, fuel duty will be frozen. Furthermore, the National Minimum Wage and the National Living Wage will rise by 3.9% in April 2027.
Business Growth
Healy also presented efforts to spur growth and support British businesses. Among other measures, the threshold for small business rate relief for retail, hospitality and leisure businesses will increase from £12,000 to £18,000. Measures that help entrepreneurs to “start, scale and stay” include raising the tax-free profit from a new venture from £1,000 to £3,000, a new “Young Entrepreneurs' Allowance” which covers a year of living costs, and a “New Founders’ Relief” 10% tax rate on lifetime gains up to £10m for business founders. Further, the Budget gives an extra £20.4bn to the National Wealth Fund and the British Business Bank to invest in growing companies.
Energy
Energy costs were highlighted, with multiple measures to cut costs announced, including an extension of the VAT cut on electricity to July 2027, scrapping a levy on bills that fund hydrogen, to lower bills and moving older renewables to fixed-price contracts. In the long-term, the Budget aims to deliver the British Industrial Competitiveness Scheme, meaning that 10,000 energy-intensive manufacturing firms will receive a 20-25% electricity discount. The Budget prioritises a cheaper energy mission while procuring new generation where it lowers bills and can be accommodated by the grid.
AI and Technology
Across multiple parts of the Budget, AI is highlighted as a future investment area. Measures include strengthening AI security and resilience with an additional £120m for the AI Security Institute and £165m towards a new National AI Biosecurity Initiative. Plans to launch a new Data Centre Covenant were also discussed, which will set tests for approving new strategic data centres and “the contribution these projects must make to the UK, matched by a stronger offer of government support on energy connectivity for the projects that contribute the most to the UK’s objectives [...]”.
Defence and Security
The Defence Investment Plan is fully funded through the Budget, through the management of capital pressures and the reprioritisation of capital budgets. Moreover, the government aims to set out the details of how to meet the NATO commitment of 3.5% of GDP on defence spending by 2035, and the interim target of 3% by 2030, at next year's Spending Review.
To boost the contributions of private and international finance to UK defence, a new Innovative Defence Financing Taskforce will be launched. The Budget also confirms a new commitment for the National Wealth Fund and British Business Bank to deploy up to £5bn between 2027 and 2030 into defence, dual-use and other relevant sectors to defence and security. Furthermore, the government makes over £10bn available in additional financial support to Ukraine.
The First Response to the Budget
Conservative leader Kemi Baden criticised the Budget in the House of Commons, asking for further measures. Moreover, Green MP’s Ellie Chowns argued that the budget does not provide substantial change.
The Guardian's political analysis Peter Walker argues that even though growth is expected to increase in the future, the Budget might not offer a response to the weaker outlook. Further, Thomas Pope from the Institute for Government criticises the use of short-term reliefs, arguing that the measures do not provide a long-lasting way to lower high household cost and that the Budget is focused on help, but that big economic problems are still prevalent. Another criticism Walker points out, is the increased debt interest this year and that more global uncertainty, such as trade conflicts and the war in Iran, could add pressure to public finances.
The Budget's impact on business and investments remains uncertain, as tax changes and the increased bank surcharge could affect some investors and financial institutions. Furthermore, Pope argues that key decisions on defence spending, public services, welfare and taxation have been postponed until 2027, leaving questions about how the government will meet its commitments.
Meanwhile, Burnham defends the Budget, with the Financial Times reporting that he told “[...] broadcasters that it is “pretty bold” to help 20 million households with energy costs and uplifting 70,000 businesses out of business rates”.
The Budget can be found in its entirety here.