Chancellor John Healey is expected to deliver his first UK Budget on 28 October, setting out the Labour government’s tax and spending plans in the House of Commons. The announcement will coincide with the publication of detailed costs by the Treasury and an economic forecast from the independent Office for Budget Responsibility (OBR).
The new Chancellor faces a complex fiscal landscape, with government borrowing costs at historic highs. Although Healey has not ruled out tax increases, his room for manoeuvre is limited by pre-2024 general election promises to maintain stability on three major revenue streams: income tax, National Insurance, and VAT.
The Budget must balance support for households and commitments to defence spending against the fiscal rules established by previous Chancellor Rachel Reeves. These rules mandate that day-to-day public spending should not be funded by borrowing by the end of this Parliament, and that government debt should fall as a share of national income over the same period. While the OBR previously calculated a £23.6bn buffer for the first rule, analysts at KPMG suggest this headroom has shrunk to approximately £12bn due to rising borrowing costs, potentially forcing Healey to accept a smaller safety margin to avoid tax hikes.
Speculation surrounds several key policy areas. The “Your First Home” scheme, designed to assist first-time buyers in England, is expected to expand, potentially allowing purchasers of new-build properties to require a deposit of only 2.5%, supplemented by a government loan covering 20% of the property’s value. Additionally, the High Value Council Tax Surcharge, often referred to as the Mansion Tax, is under review; while it currently applies to properties worth over £2m from April 2028, reports indicate the government may lower the threshold to £1.5m.
Taxation on financial institutions and Capital Gains Tax are also under scrutiny. Unions have called for increased levies on banks following strong profit reports, a move the banking sector argues could hurt growth and competitiveness. Meanwhile, discussions continue over whether Capital Gains Tax rates or exemptions might be amended.
The Budget comes at a time of mixed economic performance. The UK economy grew by 0.4% between April and June, with July data showing a robust 0.4% increase, outpacing other G7 nations despite energy price shocks linked to conflicts involving Iran and the US-Israel. However, inflation rose to 3.1% in the year to August, exceeding the Bank of England’s 2% target due to higher petrol and diesel prices. The central bank held interest rates at 3.75% in September but warned that rates could rise if energy prices remain high.
The Budget speech is scheduled for 12:30 UK time. Following the Prime Minister’s Questions, the address will be broadcast live on BBC platforms. Conservative Leader Kemi Badenoch is expected to respond in the Commons, after which MPs will debate the measures for four days before a vote. Any approved tax changes can take immediate effect, though permanence requires the passage of a finance bill.
Is anyone else worried about inflation staying at 3.1 percent? Cutting housing support now seems incredibly reckless given current prices.
Honestly surprised the 2.5 percent deposit scheme survived. With borrowing costs so high, that loan is a ticking time bomb.
The £1.5m mansion tax threshold change sounds like a trap. Why target middle-class homeowners instead of actual billionaires?