Budget 2026: Healey doubles bank levy to fund £100 winter payment

Chancellor John Healey announced a £100 winter payment for approximately 20 million households during his first budget on Wednesday. The measure costs the Treasury £2.6 billion and applies to English households in council tax bands A through D. Healey stated the goal is to help families manage expenses during the coldest months and reach spring.

The payment is funded by a temporary doubling of the bank profits levy to 6% for 15 months. Healey also increased tax rates on income from property and savings by 2p. These measures were not widely anticipated and represent a shift in the fiscal strategy inherited from former Chancellor Rachel Reeves.

The Office for Budget Responsibility published forecasts alongside the speech, indicating that the cost of living squeeze lacks a clear end date. David Miles of the OBR described the economic picture as pretty grim. Inflation is projected to rise to nearly 4%, while growth next year is expected at 1%, which is half a percentage point below the March forecast. Real disposable incomes are projected to be only 2% higher by 2030-31 than levels prior to the pandemic.

Reactions to the tax changes were mixed. Laura Suter of AJ Bell described the rise for savers as another hefty tax increase. She suggested landlords might raise rents or sell their properties. The OBR warned that the new tax could lead to a steady rise in rents by deterring new supply. Ruth Curtice of the Resolution Foundation argued the payment was poorly targeted, noting that the poorest households require more generous assistance.

Healey blamed global economic storms for the difficult outlook, specifically citing the war in Iran and its impact on oil and gas prices. He scrapped planned fuel tax increases and extended the VAT cut on electricity until next summer. For businesses, the rates relief threshold for retail, hospitality, and leisure firms increased from £12,000 to £18,000, funded by higher taxes on gambling and vape shops.

The government will meet its main fiscal rule, with headroom of £15 billion by 2029-30. This buffer is smaller than the £24 billion Reeves built in the spring. Healey promised to rebuild the buffer to £22 billion by the end of the forecast period. Higher inflation and interest rates have already added £14 billion to the government's interest bill this year.

Conservative leader Kemi Badenoch criticized the plan, stating that Britain had overspent, overborrowed, and overtaxed. She argued that deferring decisions to next year's spending review suggests Prime Minister Burnham is keeping an early general election open. Burnham rejected this view, saying he could rule out an election for at least 12 months. The Institute for Fiscal Studies' Helen Miller warned that the upcoming spending review will be a crunch point for many departments.

The budget also included provisions for looser visa salary thresholds in certain industries and new powers for Sadiq Khan to extend the Bakerloo line. Funds were allocated to explore an Olympic bid from a northern city. Bank shares were among the biggest risers in the FTSE 100 following the announcement.