John Healey will present his first budget on Wednesday, allocating about £1.42tn this year on day-to-day spending and public investment, with about £100bn going on debt interest after government borrowing costs have risen to multidecade highs. The Guardian revealed that the budget's main revenue-raising measure is expected to be a levy on banks, a sector whose resistance has weakened following strong quarterly profits. HSBC revealed that its profits had risen 32% to about £7.2bn, and one option under consideration is reversing the bank surcharge cut from 8% to 3%, which could raise more than £2bn a year.
The chancellor faces financial pressure as government borrowing in this financial year has fallen compared with 2025-26, but not by as much as the Office for Budget Responsibility estimated in March, mainly owing to higher debt financing. Healey is spending about £1bn a month more than forecast. According to the Resolution Foundation thinktank, the buffer of £24bn built up in the last tax-raising budget is likely to have halved to £12bn, though economists at ING suggest the Treasury would prefer headroom of about £15bn. This constraint comes as Healey needs extra cash to fund cost of living measures, higher defence spending and devolution projects.
To help struggling households, the budget will include an extension of parental pay to more than 150,000 additional parents per year worth £388, including self-employed fathers and partners. The chancellor will end the carer's allowance cliff-edge, allowing unpaid carers to keep more earnings. Import tariffs on more than 100 products, including baked beans, chocolate and gherkins, will be removed to reduce shop prices. More than £1bn will be spent helping poorer households with energy bills, with the bulk going towards an expansion of the Warm Home Discount, with an additional £100 added to the existing £150 means-tested yearly rebate.
First-time homebuyers will receive more detail on the 'your first home' scheme, offering a 20% equity loan towards a new-build home with an initial interest-free period and a minimum deposit of just 2.5%. There has been strong lobbying from Labour backbenchers and unions to increase taxes paid by online marketplaces such as Amazon and eBay. One proposal would raise up to an extra £1bn by forcing them to collect VAT on behalf of large-scale sellers based in the UK as well as those overseas. That money could fund a cut in business rates paid by small high-street shops, possibly by increasing the threshold at which they start paying from £12,000 to £18,000.
Healey aims to plug a £4.7bn gap in the government's defence investment plan through cuts to other departmental budgets. However, a roadmap showing how defence spending will reach 3% of GDP by 2030 will not come until the spending review next year. Alcohol duty is likely to rise in line with the retail prices index, increasing the tax on a pint from 50p to 52p. A longstanding freeze in fuel duty is expected to continue, with extending for an additional year estimated to cost up to £2.7bn according to the Institute for Fiscal Studies. Devolution will receive a £150m funding boost and a £1.5bn borrowing facility, with an initial allocation of £285m in 'good growth' funding next year for local leaders' priorities.
For households and businesses, the budget means relief on everyday costs through lower food and energy prices, while higher earners could see changes to tax policy, and small shopkeepers may benefit from reduced business rates if online marketplaces face new levies.