Chancellor John Healey delivered his first budget with a package of measures to cut energy bills, funded by a windfall tax on banks.
Healey blamed the war in the Middle East for a worsening economic outlook since Rachel Reeves’s spring statement. The Office for Budget Responsibility now expects growth of 1 percent next year, down from 1.6 percent in the spring.
Banks face a higher levy
The bank windfall levy rate will rise to 6 percent for 15 months from January, up from the current 3 percent. The industry had expected a rate of 8 percent.
Healey addressed the sector directly, saying he celebrated the role banks play. NatWest and Standard Chartered shares rose by more than 4 percent after the announcement.
Fiscal headroom and higher borrowing costs
Higher inflation from the Iran war is expected to add £14 billion to government interest costs. Fiscal headroom against Labour’s first fiscal rule by 2029-30 stands at £15 billion, compared with the £24 billion Reeves set aside in March.
The government plans to rebuild the headroom to £22 billion by 2030-31, and says it will keep its deficit-reduction plans on track.
Energy and fuel measures
The VAT cut on electricity bills will be extended to July. Planned fuel duty rises have been cancelled. The energy price cap is expected to rise sharply in January as oil prices stay high.
Healey signalled longer-term reform of how energy bills are charged. Business rates relief for retail, hospitality and leisure firms will rise from £12,000 to £18,000.
Source: Office for Budget Responsibility
