John Healey raised taxes on banks and landlords to fund a £100 winter handout for 20 million families as official forecasts made clear there is no end in sight for the cost of living crisis. In his first budget, the chancellor blamed “global economic storms” for the grim outlook, as the war in Iran drives up oil and gas prices. But he also faced criticism for failing to squeeze more money from profitable banks, punishing savers and not giving enough help to the poorest.
In a low-key speech designed with febrile bond markets in mind, Healey was at pains to stress he was sticking to Labour’s self-imposed fiscal rules, and there were few surprises in his hour-long address to MPs. But with households facing soaring energy prices, and mortgage bills rising amid higher interest rates, Healey offered a £100 cost-of-living payout, which will be sent to all English households in council tax bands A-D. It formed the centrepiece of a cost of living package, which he said would “take the pressure off in the coldest months, and see people through to the spring”.
The £2.6bn cost of the £100 giveaway includes funding for the Scottish and Welsh governments, which Healey said he hoped they would use to implement a similar scheme. I know that people look to government at times like this, not to solve all their problems, but to give them a bit of breathing space,” he said. But the government’s independent forecaster warned households face a “grim picture” on living standards, as it slashed the outlook for the economy in 2027 and said there was “virtually no growth” in disposable income for households.
Healey also came under fire for an unexpected 2p increase in tax rates for income earned on property or savings. As well as hitting savers and landlords, the Office for Budget Responsibility (OBR) said it risks “leading to a steady rise in rents”, by deterring landlords from the market and cutting supply, as well as passing on costs to tenants. Ruth Curtice, the chief executive of the Resolution Foundation thinktank, criticised the £100 handout, arguing it would have been better to give more generous support to the poorest consumers.
As expected, the chancellor also cancelled fuel tax rises planned by Rachel Reeves, and extended the VAT cut on electricity prices previously announced to next summer. Healey announced several measures intended to cut businesses’ costs – including raising the rates relief threshold from £12,000 to £18,000 for companies in the retail, hospitality and leisure sectors. The change would be funded by higher taxes on gambling and vape shops, he said.
The cost of the household support measures will be met by a doubling of the additional levy banks pay on their profits, to 6%; as well as the higher taxes on income from property and savings. The additional bank tax will only last for 15 months and marked a less significant rise than some in the industry had feared. Banks’ share prices were among the highest risers in the blue chip FTSE 100 index on Wednesday.
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