John Healey will deliver his first Budget as Chancellor today, October 28, with households and businesses waiting to see whether he will announce further help with the cost of living.
Andy Burnham's Chancellor faces a difficult economic backdrop, with pressure on public finances compounded by higher borrowing costs linked to turmoil in international markets following the Iran war.
Ministers have already unveiled a series of measures aimed at easing everyday costs, including changes to Carers’ Allowance, mileage payments and food tariffs. Further announcements are expected on energy bills, fuel duty, wages and public spending.
But with the Government facing tight financial constraints, the Chancellor will also have to balance support for households against his commitment to meeting the fiscal rules.
Here is what to expect from the Budget 2026, including the measures already announced and the policies reportedly under consideration.
1. Pensions and Personal Allowance
There's been much debate about how the state pension and personal allowance issue will be resolved, and given that the state pension is tipped to rise above the income tax threshold in April, today is likely to be the day that's finally sorted.
In a post on social media, Martin Lewis highlighted that the full new State Pension is expected to rise to around £13,040 a year from April 2027, while the Income Tax personal allowance remains frozen at £12,570.
Martin pointed out that John Healey has said the Government will honour former Chancellor Rachel Reeves' promise that pensioners whose only income is the State Pension will not pay Income Tax.
He questioned whether that protection could create a cliff edge for those with even a small amount of extra income.
“An important question for @JohnHealey_MP,” Martin wrote.
He continued: “So the full new State Pension would normally attract tax. Yet you've said you'll honour former Chancellor Rachel Reeves' promise that those whose ONLY income is the State Pension won't pay tax. But will that be a cliff edge?”
Of course, many would like to see the HMRC Personal Allowance increase for everyone. As Alex Beavis, Interim Director of Banking at LHV Bank, says, it's particularly key for savers. He's calling on the Chancellor to raise the allowance: "The biggest tax rise facing savers won't make the Budget headlines. It's already happening to your hard-earned cash, year after year.
"The Personal Savings Allowance hasn't moved since 2016. With savings tax rates due to rise by two percentage points from April, more people will be taxed twice on the same money."
2. Cost-of-living help: What could change for households?
Measures to ease pressure on household budgets are expected to feature prominently in the Budget.
Prime Minister Andy Burnham has asked the Chancellor and Energy Secretary Miatta Fahnbulleh to examine whether standing charges on gas bills could be scrapped.
Ministers are also looking at whether to break the link between wholesale gas prices and electricity bills, despite gas accounting for only a proportion of total electricity generation.
Fuel duty is another key issue for motorists.
Mr Healey is expected to cancel a planned January increase, keeping fuel duty frozen at 52p per litre for a 16th consecutive year. The reported move follows concerns about rising petrol and diesel prices and the impact of the Iran war.
Five cost-of-living measures already announced
Ministers have unveiled five “everyday fixes” ahead of the Budget.
These include:
- Carers’ Allowance: Replacing the earnings cliff edge with a taper, so the benefit would fall by £1 for every £1 earned above the weekly limit. The new system is not expected to be introduced until 2030/31.
- Mileage allowance: Making the 55p-a-mile tax-free rate permanent for the first 10,000 business miles, while increasing the rate above that threshold from 25p to 35p.
- Food tariffs: Removing tariffs on more than 100 products, including chocolate, baked beans and gherkins. The Treasury estimates the changes could save households around £21 on food shopping over a year.
- Parental pay: Extending support to more than 150,000 parents each year, including self-employed fathers who have previously missed out.
- Post Office parcels: Rolling out hundreds of additional drop boxes to make sending and returning parcels easier, particularly ahead of Christmas.
The Prime Minister has said further measures will be announced on Wednesday to give families and businesses more “breathing space”.
3. Minimum wage: Nearly 4% increase expected
The Chancellor is expected to announce an increase in the minimum wage.
The national living wage is set to rise by nearly 4%, from £12.71 to £13.20 an hour.
The reported plans would also end the trend of increasing the minimum wage for workers aged 18 to 20 by a larger percentage than the rate for older workers.
Instead, the younger age group's minimum wage would rise at roughly the same rate as the national living wage, according to the report.
The details remain subject to confirmation in the Budget.
4. Business red tape: £800million in potential savings
The Treasury estimates that reducing paperwork and other administrative requirements could save businesses around £800million.
The proposals form part of efforts to reduce the burden on firms and support economic growth.
5. Capital gains tax: Rate rise ruled out
Mr Healey has ruled out increasing capital gains tax in the Budget.
The tax is charged on profits made when people sell certain assets, such as shares or second homes.
Some Labour figures have called for capital gains tax rates to be brought closer to those applied to earnings, but the Chancellor has rejected a rise.
6. Bank tax: Chancellor considers higher surcharge
A potential increase in the tax surcharge on banks is reportedly under consideration.
The surcharge, currently set at 3%, could rise to 8%, reversing a reduction introduced by former chancellor Jeremy Hunt.
The Trades Union Congress, which supports the proposal, said the increase could raise £2.25billion a year from banks' “bumper profits”.
However, representatives of the financial sector have warned that a higher tax could discourage investment in Britain.
It remains to be seen whether the Chancellor will include the proposal in his Budget.
7. Defence spending: £4.7billion funding gap
Mr Healey has promised to fill a £4.7billion shortfall in Britain's defence investment plan.
The plan, one of Sir Keir Starmer's final major announcements as prime minister, promised an additional £15billion for the UK defence sector but allocated only £10.3billion, leaving the Chancellor to find the remaining funding.
The additional spending would help raise defence expenditure to 2.7% of the economy by 2027.
The Government's longer-term path towards NATO's target of 3.5% of gross domestic product by 2035 is due to be set out at next year's spending review.
Mr Healey previously resigned as defence secretary in a dispute over funding, arguing that the Government needed a plan to reach 3% of GDP in 2030.
The OBR estimates that reaching that level would cost an additional £17.3billion in 2029/30.
8. Artificial intelligence: More than £600million for projects
More than £600million is set to be committed to projects supporting the development and safe use of artificial intelligence.
The planned funding includes:
- £165million for a national AI biosecurity initiative.
- An additional £120million for the AI Security Institute.
- £60million for a national cyber shield using AI to protect against hackers.
The investment is intended to support the development of AI while strengthening safeguards against potential threats.
9. Olympics: £7million study into northern England bid
A £7million fund will be used to examine the feasibility of a potential future bid to host the Olympic and Paralympic Games in northern England.
The funding would support a study into whether such a bid could be viable.
It does not mean a bid to host the Games has been confirmed.
10. Devolution: £285million for regional leaders
An initial £285million is set to be allocated as part of plans to give mayors and regional leaders in England greater funding and powers.
The aim is to allow local leaders to invest in projects in their areas and have more control over regional priorities.
11. Social housing: More than £1billion allocation
More than £1billion is set to be allocated to social and affordable housing.
The funding forms part of the Government's wider plans to address housing needs and increase the availability of affordable homes.
12. Rough sleeping: £432million to help people off the streets
The Budget is also expected to include an additional £432million for the rough sleeping programme in England.
The aim is to help get people off the streets by Christmas.
Mr Burnham has said he wants “every single person” sleeping rough to receive an offer of help by the end of the year.
The funding was disclosed ahead of the Budget, with the Government expected to set out further details as part of its spending plans.
Public finances: How much room does the Chancellor have?
The state of the public finances will be a central issue in Mr Healey’s first Budget.
The Chancellor has retained the fiscal rules established by his predecessor, Rachel Reeves. These require day-to-day spending to be funded by tax receipts rather than borrowing by 2029/30, while public debt as a share of the economy must also be falling in the same year.
In March, the Office for Budget Responsibility (OBR) forecast that the Government had around £24billion of headroom against its fiscal rules.
However, higher borrowing costs could significantly reduce that buffer.
The Resolution Foundation estimates that headroom may have fallen to around £12billion, while the Institute for Fiscal Studies (IFS) believes it could still stand at approximately £20billion.
The figures highlight the uncertainty facing the Chancellor as he considers how much additional support he can afford to offer households and businesses.
Will income tax rise?
The Chancellor say not, but some experts advise that it should. Antonia Medlicott, Founder and Managing Director of financial education specialists Investing Insiders, says: “I wouldn’t like to pay more income tax, and I’m sure nobody else would. But a transparent income tax rise is much better than a dozen smaller, stealthy tax grabs that sneak up on ordinary people and increase financial pressure on them.
“The chancellor doesn’t have much headroom, and he has made a mistake by ruling out rises in income tax, employee national insurance, and VAT for working people. All three raise serious money.
“The easiest of those to raise is the basic rate of income tax. A rise from 20 per cent to 21 per cent would raise about £8bn a year from 2027-28, according to HMRC. That’s about £224 a year for someone earning £35,000, or about £74 for a pensioner on £20,000.
“Raising VAT would feed straight into inflation in the middle of an energy shock, while employee national insurance falls only on earnings, so the whole burden lands on workers. Income tax reaches pension income and rental income too, which spreads the load across a much wider base.”
Recommended reading:
- DWP State Pension calculator - how much more you could get under the budget rise
- Martin Lewis highlights cheaper way to dry washing as households face higher bills
- Where kids can eat free this October half-term – full list of restaurants and cafes
When is the Budget?
John Healey will deliver the Budget on Wednesday, October 28, 2026.
Households will be watching for announcements affecting wages, fuel costs, energy bills and benefits, while businesses will be looking for details on tax, regulation and investment.
Although several measures have already been announced, other proposals remain based on reports ahead of the Chancellor's statement and should not be treated as confirmed until the Budget is delivered.
Share