UK Budget Preview: Key Measures and Fiscal Challenges Ahead

The period leading up to the Budget usually fuels widespread speculation about its contents, though the government is seeking to limit such conjecture this year.

Healey and Prime Minister Andy Burnham face a challenging balancing act: providing greater support to households and meeting defence spending commitments, while adhering to Labour’s manifesto tax pledges and the government’s self-imposed fiscal rules.

The previous chancellor, Rachel Reeves, established two core fiscal rules, which the current leadership has committed to uphold. They are as follows:

In March, the Office for Budget Responsibility (OBR) calculated that the first rule would be satisfied with a margin—or headroom—of £23.6 billion. That headroom is now expected to have narrowed.

Analysts disagree on the extent of the decline. Rising government borrowing costs will increase debt interest payments, but higher inflation could also boost tax revenues.

KPMG estimates the government’s buffer may have fallen to £12 billion, while the Institute for Fiscal Studies puts the figure closer to £20 billion.

Speculation continues regarding the specific measures to be announced in the Budget.

Bank taxes

Banking executives have indicated to the BBC that they anticipate Healey will increase taxes on the sector. UK banks have reported substantial profits, prompting unions to call for higher taxation.

The Treasury has several options: it could raise the 3% surcharge on profits—which was reduced from 8% under the previous Conservative administration—or increase the bank levy based on the size of lenders’ balance sheets.

Your First Home scheme

Further details on the Your First Home scheme, designed to assist first-time buyers in England in purchasing a property, are expected to be announced in the Budget.

The scheme would allow buyers to purchase a new-build home with a 2.5% deposit, accompanied by a loan worth 20% of the property’s value to help fund the purchase.

Concerns were raised that the eligibility threshold for first-time buyers might be set at £90,000 in combined income outside London, and £110,000 in the capital, potentially excluding couples such as teachers, nurses, or police officers.

However, the threshold will now be £110,000 outside London and £140,000 in the capital, according to the BBC.

Capital Gains Tax

There had been speculation that Capital Gains Tax (CGT)—levied on profits from selling assets that have increased in value—might be altered through higher rates or by removing or amending exemptions. This option has now been ruled out.

Tax on businesses

The Times has reported that online retail giants such as Amazon and eBay are expected to be made responsible for collecting tax owed by traders using their platforms.

The newspaper said the revenue raised is expected to fund a reduction in business rates for High Street shops, by raising the threshold at which small companies begin paying rates from £12,000 to £18,000.

Fuel duty

Fuel duty was frozen by the Conservatives in March 2022, and Sir Keir Starmer’s government extended the freeze, deciding in May to postpone a planned 3p increase from September until the end of this year.

Healey told the BBC in late September that the timing and approach to addressing rising petrol and diesel costs would be addressed in the Budget, but did not specify whether the freeze would be extended again.

Energy bills

Household energy bills are set to record their largest increase in four years this January, with a typical annual bill forecast to rise by £276.

There has been speculation that Healey is planning energy bill assistance for households receiving certain benefits.

Mansion tax

The High Value Council Tax Surcharge—known as the mansion tax—was announced in last year’s Budget and will apply to properties in England valued above £2 million from April 2028.

Speculation had suggested the government might extend it to properties worth more than £1.5 million. However, reports now indicate that Healey has ruled this out.

Cutting red tape

Healey has said the government intends to slash “form-filling and pointless paperwork,” potentially saving UK businesses up to £800 million.

Ministers state that the proposed regulatory changes will reduce unnecessary bureaucracy for businesses.

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