Budget 2026: What to expect from John Healey's first Budget — and who will pay for it

With borrowing costs rising and little room for manoeuvre, the Chancellor is preparing a cautious first Budget. Energy bills, wages, tax rises and greater powers for the regions are all in focus.

Wednesday 28 October 2026 | Pre-Budget briefing

Chancellor John Healey will deliver his first Budget to the House of Commons today, in the first major fiscal test of Andy Burnham's premiership.

He is expected to begin speaking at around 12.30pm, with a string of announcements already trailed by the Treasury and reported in the press.

The government's message is clear: it wants to ease the pressure on household budgets while maintaining credibility with financial markets.

But with borrowing costs rising, the economy under pressure and limited fiscal headroom, the bigger question is how much Healey can afford to deliver — and who will pay for it.

The backdrop: little room for manoeuvre

Healey has committed to maintaining the fiscal rules inherited from his predecessor, Rachel Reeves.

Economists estimate that his remaining headroom — the buffer against breaking those rules — could be around £15bn to £20bn, although the final figure will depend on the Office for Budget Responsibility's forecasts.

That leaves relatively little scope for expensive new commitments.

The war involving Iran has complicated matters further. Disruption to global energy supplies has pushed up costs, fuelled inflation and contributed to higher government borrowing costs.

For a new administration promising change, the challenge is balancing immediate help for households with longer-term investment, without unsettling investors.

What's already been announced — and what's expected

Energy bills: gas standing charges to go

One of the biggest announcements has come before Healey even reaches the despatch box.

The government plans to abolish standing charges on household gas bills, asking energy regulator Ofgem to implement the change in 2027 or as soon as possible afterwards.

The Treasury says around 60% of affected households could benefit, with estimated average savings of approximately £45 a year among those who gain.

But there is an important catch: the costs currently recovered through standing charges will instead be incorporated into gas unit prices.

Households that use relatively little gas are likely to benefit most, while some higher-use households could face larger bills.

Electricity standing charges are not being abolished as part of the announcement.

Separately, domestic electricity in Great Britain has already been temporarily zero-rated for VAT, from 1 October 2026 until 31 March 2027.

Fuel duty: another freeze expected

The Chancellor is widely expected to extend the freeze on fuel duty, postponing an increase currently scheduled for January 2027.

The temporary 5p-per-litre duty reduction has already been extended until the end of 2026.

Keeping rates down would help motorists and businesses facing high fuel costs, although it would also mean foregoing tax revenue at a time when the Treasury has little spare money.

The final decision awaits the Budget.

Minimum wage: a rise of almost 4%

The National Living Wage for workers aged 21 and over is reportedly set to rise by approximately 3.9% in 2027, taking the hourly rate from £12.71 to around £13.20.

The government is also expected to slow the pace at which the minimum wage for 18- to 20-year-olds catches up with the adult rate.

Reports suggest younger workers could receive a similar percentage increase rather than the larger rises seen in recent years.

The precise rates remain subject to confirmation.

Everyday fixes: carers, motorists and families

Several smaller but potentially significant measures have already been announced.

The government plans to replace the Carer's Allowance earnings cliff edge with a taper, so that people do not lose their entire allowance simply by exceeding the earnings threshold.

Healey has also confirmed that the higher tax-free mileage rate of 55p per mile for the first 10,000 business miles will become permanent, with the rate above that threshold increasing from 25p to 35p.

Other measures include removing tariffs on selected food imports, expanding parental-pay support to more than 150,000 additional parents annually and making Post Office parcel services more convenient.

For businesses, a separate package of reduced paperwork and extended tariff suspensions is estimated by the Treasury to save almost £800m annually.

These are relatively modest changes individually, but they form part of Burnham's broader emphasis on tackling everyday costs and frustrations.

Spending priorities: defence, housing, AI and the regions

Beyond immediate household support, attention will turn to spending commitments.

Defence remains a significant pressure on the public finances, with questions about how the government intends to fund its investment commitments.

The Treasury has already signalled substantial investment in artificial intelligence, including support for infrastructure, British technology companies and AI security.

Housing is another area to watch, with reports pointing towards further investment in social and affordable homes.

And devolution is likely to feature prominently.

Burnham has long argued for moving economic decision-making away from Westminster. The government has promised to transfer more power and funding to local areas, and today's Budget could provide further detail on how that will work.

The precise funding allocations, timescales and conditions will matter as much as the headline announcements.

The big question: who pays?

The spending measures may attract the headlines, but the tax decisions could prove more consequential.

Banks are firmly in the spotlight

One of the most closely watched possibilities is a rise in the surcharge imposed on bank profits.

The rate currently stands at 3%, following a reduction from 8% under Jeremy Hunt.

Reports suggest Healey is considering reversing that cut, potentially raising around £2bn a year.

Such a move could prove politically attractive, although banks are likely to argue that higher taxes could constrain lending and investment.

No final decision has been confirmed.

Capital gains tax looks set to escape

Healey has reportedly rejected proposals for an increase in capital gains tax, amid concerns that higher rates could discourage investment or cause taxpayers to delay selling assets.

That would remove one potential revenue-raising option.

Other possibilities reportedly under consideration include changes to gambling taxes and more targeted measures affecting particular sectors.

With fiscal headroom constrained, smaller tax changes and anti-avoidance measures could make a significant contribution to the overall package.

Five things to watch this afternoon

1. The OBR's verdict. The independent forecaster's updated growth, inflation and borrowing projections will be crucial. So will the amount of fiscal headroom Healey leaves himself.

2. The surprise announcement. Much of the Budget has already been briefed, but Chancellors traditionally reserve at least one significant measure for the speech.

3. The tax package. Will banks bear the main burden, or will revenue-raising measures extend to other sectors and taxpayers?

4. The true impact on household bills. The gas standing-charge reform will not benefit everyone equally. The distribution of costs matters as much as the headline savings.

5. The market reaction. Investors will be watching whether the Chancellor's tax and spending decisions look credible. Gilt yields and sterling will provide an early indication of their response.

The bottom line

Healey's debut Budget looks set to be an exercise in carefully managed expectations.

The government wants to demonstrate that it can make a tangible difference to household finances while maintaining the fiscal restraint demanded by the markets.

Some measures, including support for carers, motorists and households facing high energy bills, have already been announced.

Others remain speculation until the Chancellor confirms them.

The real test will be whether Healey can show that his plans are affordable, credible and capable of delivering the change promised by Burnham's new administration.

The Budget begins at approximately 12.30pm. The OBR forecasts are scheduled for 1.30pm.

This article reflects confirmed announcements and reporting available ahead of the Budget statement on 28 October 2026. Reported proposals have not been treated as final government policy.