What changed
Chancellor John Healey will deliver Labour’s first Budget on 28 October 2026, setting out its tax and spending plans as borrowing costs reach what he calls “historic highs.” The package is expected to include higher taxes on banks, new details of the Your First Home scheme, and protection for low-income pensioners, while changes to Capital Gains Tax have been ruled out.
Why it matters
Healey has little fiscal space. The government’s headroom for meeting its borrowing rules was £23.6bn in March, but estimates now range from £12bn to £20bn. Higher debt-interest costs may shrink that buffer, although inflation can also raise tax receipts.
That leaves a narrow path between helping households, funding defence commitments and keeping Labour’s promises not to raise income tax, National Insurance or VAT. The Budget’s real test will be whether its measures fit within two rules: day-to-day spending must be covered without borrowing by the end of the parliament, and debt must be falling as a share of national income.
Banks may face either a higher profits surcharge, currently 3% after being reduced from 8%, or a larger levy based on their balance sheets. For first-time buyers in England, the proposed scheme would pair a 2.5% deposit with a loan covering 20% of a new-build home’s value. Eligibility thresholds are expected to be £110,000 for combined income outside London and £140,000 in the capital.
The Office for Budget Responsibility’s forecast, published alongside the Budget, will show how much room the Treasury actually has. Until then, the scale of the tax rises and spending decisions remains unsettled.
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