Budget 2026, £100 Energy Payment, Fuel Duty Relief, Bank Tax Rise

Chancellor John Healey has delivered a Budget that HM Treasury says gives families and businesses "breathing space" from rising costs, while setting up longer term changes to energy, housing, defence and the way public money is invested. It was published on 28 October 2026.

The Treasury describes the package as built on fiscal discipline, with borrowing falling and the government meeting its fiscal rules with a buffer. It also says the Budget lays the groundwork for the Prime Minister's forthcoming 10 year plan. Here is what the announcement says, area by area, and how it is being paid for.

How will the Budget cut energy bills for households?

Energy sits at the front of the package. In 2027 the government will provide a £100 Household Energy Payment to up to 20 million households in bands A to D in England, with funding for similar support provided to the rest of the UK. The temporary VAT cut on electricity bills will also be extended until 1 July 2027, which the Treasury says takes around £50 off the Ofgem annual price cap in April 2027.

The government will ask Ofgem to abolish gas standing charges and fold them into unit rates. It admits that not every household will see an automatic saving, and says it will set out targeted mitigation "in due course". We have already looked at what scrapping gas standing charges means for households.

On the longer term, the Treasury says a new framework will be introduced at the spending review in 2027, aimed at driving costs down over ten years. Until then, no further policy costs will be placed on bills unless they bring bills down or are essential to keep the lights on. That approach will apply to the next renewables auction, Allocation Round 8. The tax on gas bills planned by the previous government to fund hydrogen will be scrapped, with planned hydrogen projects publicly funded instead.

Households may also see help with installing low carbon kit. A new Warm Homes loans scheme will let people spread the upfront cost of solar panels, batteries and heat pumps, which the government says together could cut bills by up to £550 a year.

What does Budget 2026 mean for drivers and wages?

Drivers get a six month extension to the 5p cut in fuel duty, and the planned Retail Prices Index increase is deferred to 1 July 2027. The Treasury says its fuel duty decisions across this Parliament will save the average car driver £230, the average large goods vehicle driver £472 and the average heavy goods vehicle driver nearly £4,000, compared with the previous government's plans.

Tax free mileage rates will be permanently made more generous, which the Treasury says supports around 2 million employees and 1 million self employed people. Prices at local, lower powered public electric vehicle chargers will be cut, saving drivers who rely on them an average of £150 a year.

On pay, the National Living Wage rises by 3.9% to £13.21 an hour on 1 April 2027. For a full time worker on that rate, the government puts the increase at £910 in gross annual earnings. Parental pay will also be extended to more than 160,000 additional parents, including self employed fathers and partners who have previously missed out. Our report on the everyday fixes announced ahead of the Budget covers the mileage, Carer's Allowance and tariff measures in more detail.

Who gets help with housing and business rates?

For buyers, the Your First Home Scheme is expected to help 70,000 people onto the property ladder. A new First Time Buyer ISA will offer what the Treasury calls a simpler route to saving a deposit. From today, the Lifetime ISA withdrawal charge falls to 20%, so first time buyers purchasing above the existing £450,000 property price cap are not penalised.

The Budget adds £1.5 billion for social and affordable housing, taking total capital investment over the next 10 years above £40 billion. Smaller housing developments on brownfield land will be exempt from Biodiversity Net Gain requirements. A further £432 million over two years is earmarked to help people off the streets, in support of an ambition to end rough sleeping.

High streets are the other big beneficiary. Every retail, hospitality and leisure property in England will see its business rates frozen in real terms, reduced or cut to zero. Raising the Small Business Rates Relief threshold takes around 70,000 more of these businesses out of business rates, which the Treasury says means half of all such properties will pay nothing. A two year real terms freeze applies to all of them. That sits on top of the extra 20% cut for pubs and most live music venues announced in July.

Not everyone qualifies. Vape shops and adult gaming centres will no longer benefit from certain business rates reliefs. Business rates are devolved, so Scotland, Wales and Northern Ireland will receive Barnett Consequentials to fund equivalent measures if they choose to.

Industry gets its own energy support. From April 2027, the British Industrial Competitiveness Scheme will back more than 10,000 eligible businesses in electricity intensive Industrial Strategy sectors and their supply chains, cutting electricity bills by up to 25%.

Who is paying for it? Bank tax, savings income and online sales

The Treasury says the Budget rejects broad based tax rises and that every policy is fully funded over the forecast. The headline funding source is banks. The Bank Corporation Tax Surcharge goes up from 3% to 6% for 15 months, raising £1.5 billion to help pay for household energy support, and then ends on 31 March 2028.

Savers and landlords face a rise too. From April 2027, tax rates on savings and property income go up by a further two percentage points across all bands. The Treasury says 84% of taxpayers will see no increase in their tax bill and that the £20,000 cash ISA limit is preserved. It also plans to work with industry on a new ISA incentive for people investing in a stocks and shares ISA for the first time.

Other revenue measures target specific behaviour. From October 2027, online marketplaces will become responsible for collecting VAT on qualifying sales by UK businesses using their platforms. Larger private hire operators will have to account for VAT consistently on the full passenger fare, while smaller taxi and minicab firms are protected. Rules on company distributions will be modernised to stop complex arrangements being used to extract profits at lower tax rates. Gambling tax on higher risk machine games will also rise.

Pensioners get a targeted break. From April 2027, people above State Pension age with total income up to the value of the new State Pension will not pay Income Tax, thanks to the Pension Tax Allowance. In 2027-28, around 500,000 pensioners should benefit, with around 290,000 paying no tax at all and the rest receiving a tapered allowance.

Budget 2026 investment, Rolls Royce, AI funding and mayors' new tax powers

On industry, a multi decade cooperation agreement with Rolls Royce begins with a joint 10 year, £2.5 billion programme on next generation gas turbine technology, supporting 3,300 jobs in the next few years. Three public private life sciences investments total over £1 billion, backed by almost £70 million in grants. Convatec will invest over £500 million in a Manchester R&D hub, Vertex Pharmaceuticals over £300 million in Oxford, and Kindeva £200 million in Loughborough.

For founders, a new Founders Relief offers a 10% Capital Gains Tax rate on up to £10 million of lifetime gains for eligible high growth, innovative companies. The trading allowance triples from £1,000 to £3,000. The government also says it will legislate so that non-compete clauses are no longer a barrier to hiring for startups and scaling firms, with a detailed position due in early 2027. Visa changes include expanding the High Potential Individual visa to graduates of the world's top 150 institutions and extending the Graduate visa to two years for eligible universities.

An AI package worth £700 million includes an extra £120 million for the AI Security Institute and £140 million for the Sovereign AI Unit. A new Data Centre Covenant will expect strategic projects seeking enhanced support to meet tests on community investment, energy costs, British industry and jobs, and national security. For wider context, see our report on how the UK plans to protect national defences from AI risks.

The state is also taking a bigger investing role. The National Wealth Fund and British Business Bank receive an additional £20.4 billion between them, including £15.4 billion for the National Wealth Fund, of which £2 billion is for the new Energy Wealth Fund. The Treasury expects the recapitalisation to create and support 140,000 jobs. We covered that fund when the Jackdaw gas field was approved alongside the Energy Wealth Fund. The government has also committed to fully delivering the Fingleton Nuclear Regulatory Review, and Rachel Skinner CBE will chair a review of rail infrastructure costs reporting in six months.

On devolution, all Mayors will receive income tax assignment from 2028, and all Strategic Authorities will gain the power to introduce an Overnight Visitor Levy. The government aims for over 90% of England's population to be covered by a devolution agreement, with full coverage by the end of 2028, and confirms £285 million in 2027-28 for areas moving towards a deal. It intends local and regional government to retain 100% of business rates income before the end of the decade. This builds on the Chancellor's growth speech on fiscal devolution.

How much is Budget 2026 spending on defence, Ukraine and welfare?

The Budget fully funds the £15 billion Defence Investment Plan, including £4.7 billion that was previously unfunded, by reprioritising capital budgets across government. Defence spending this year is £14 billion higher than in the previous government's final year, and the plan takes it to 2.7% of GDP in 2027-28. At next year's Spending Review, the government will set out how it will meet the NATO commitment of 3.5% of GDP by 2035, with a target date of 2030 for 3%. The National Wealth Fund and British Business Bank will deploy up to £5 billion over four years into defence and related sectors.

The Budget also provides over £10 billion of additional economic and military support for Ukraine. That includes up to £5.5 billion of World Bank guarantees, £0.5 billion in extra military support for this winter and a £3 billion increase in UK Export Finance capacity, prioritised for military support.

On welfare, the Treasury says it will "rewire" the system through structural reform rather than crude cuts. It will consider the recommendations of Alan Milburn's report on young people not in employment, education or training, and Sir Stephen Timms' review of Personal Independence Payments. New fraud and error measures are expected to save an additional £1.4 billion between 2027 and 2032, taking total savings this forecast to £20 billion. Face to face assessments for health benefits will increase, and benefit entitlement will be removed from prisoners detained in hospital after convictions for the most serious violent and sexual offences.

Is the Budget fully funded? What £15bn of headroom means

The Treasury says the stability rule is met with £15 billion of headroom in 2029-30, meaning day to day spending is fully funded and borrowing is reserved for investment. That headroom is £9 billion lower than in March, which it attributes to the conflict's impact on debt interest costs. It rises to £22 billion in 2030-31, the target year at the next Budget.

The investment rule is met with £24 billion of headroom in 2029-30. Borrowing, which fell last year, continues to fall over the forecast, and debt is lower at the end of the forecast than it is today.

These are government figures drawn from the Treasury's announcement. The full Budget documents and any independent assessment of the forecasts were not part of the source material for this article, so the projections here should be read as the government's own account.