John Healey’s first Budget tackles cost of living crisis
Chancellor John Healey has been warned that he has left “a grim picture” on household income despite delivering a “cost of living Budget” with £100 off the energy bills of the poorest homes, reports BritPanorama.
In his first Budget, Mr Healey announced a series of modest measures aimed at “the working people of Britain,” including an extension of the VAT cut on electricity bills and a 3.9% increase in the minimum wage for 2.3 million workers to provide “breathing space” during this period of economic uncertainty.
However, he also unveiled a 2% tax hike on income from property and savings, effective from April, alongside a temporary increase in the bank surcharge from 3% to 6% for 15 months. This Budget marks a record high for the tax burden on UK citizens and businesses.
The government highlighted that around 300,000 individuals will face no tax, with an additional 200,000 paying less, and that 70,000 high street retailers will be exempt from business rates due to the threshold being raised from £12,000 to £18,000. This initiative will be funded by removing exemptions for vape shops and gambling outlets.
Other significant measures include:
- Extension of the fuel duty freeze until July next year
- A pension tax allowance aimed at pensioners with incomes at or below the full new state pension threshold
- Replacement of the Lifetime ISA with a First Time Buyer ISA and a new ‘Your First Home’ scheme to aid home ownership
- Maintaining the tax-free cash ISA limit at £20,000, reversing earlier plans to reduce it
- Increase in gambling machine games duty from 20% to 25%
- An additional £10 billion for economic and military support to Ukraine, along with £500 million in urgent military funding this winter
The Office of Budget Responsibility (OBR), the budget watchdog, described the UK’s “economic and fiscal position” as extremely challenging, attributing much of the national debt to nearly two decades of shocks and stagnation. Professor David Miles, a member of the OBR’s Budget Responsibility Committee, spoke of a “pretty grim picture” regarding growth in real household disposable income since before the Covid pandemic.
He noted, “If you go back to just before Covid and take that as your base, where we are right now which is what some seven years later, is virtually no growth in per person real household disposable income. That’s pretty unusual in the history of the UK.”
Similarly, Helen Miller, director of the influential Institute for Fiscal Studies, criticized the Budget, asserting that it offered too many “fiddly measures” with little impact on overall growth. She stated, “We are still waiting on significant issues like disability benefits, support for young people, plans for social care, and defence spending.”
Miller further cautioned tenants to “expect higher rents,” as property tax increases will impact landlords’ decisions regarding investment. “Higher rates will discourage investment. Expect higher rents,” she added.
Despite stepping down from Sir Keir Starmer’s government over concerns regarding inadequate funding for the defence budget, Mr Healey pushed the issue to next year, planning to set out how spending will increase to 3.5% of GDP by 2035. This delay spurred criticism from opposition parties, who accused him of diminishing funds by £1 billion for 2027/28 and 2028/29—an allegation the government denied. The Conservatives labeled it “a dereliction of duty,” while the Liberal Democrats described it as “shameful.”
Outlining his spending intentions, Healey characterized the UK as “being battered by a global economic storm,” noting that the OBR has reduced its GDP growth forecast for next year from 1.6% to just 1% for 2027. He attributed this deterioration, in part, to the ongoing conflict in the Middle East, which has further strained public finances.
He reiterated his commitment, stating, “We can’t wish [the storms] away. We must choose the course we steer through them.” In response, Tory leader Kemi Badenoch emphasized the urgency of addressing Labour’s perceived financial issues, declaring, “This Budget fails to do it. Britain is overspent, over-borrowed and overtaxed.”
Mixed reactions followed the Budget announcement, as many viewed the £100 rebate on energy bills for approximately 20 million households as insufficient. The Labour-leaning Resolution Foundation noted that average energy bills are projected to reach £2,210 in 2027, with the new support covering less than a fifth of the anticipated rise.
Supporters of Healey appreciated his attempt to address fiscal challenges, with TUC General Secretary Paul Nowak stating, “The chancellor has made a good start by doubling the bank surcharge.” However, he called for further enhancements to support struggling manufacturers.
As labour polls indicated a growing possibility of a majority for Labour, the Budget has sparked speculation regarding an early election announcement from Prime Minister Andy Burnham, although he has ruled this out for the coming year.
