Executive Summary 

The Chancellor John Healey delivered his first Budget on 28 October 2026, setting out the government’s plans for taxation, public spending and economic growth under Prime Minister Andy Burnham. 

The Budget comes at a difficult time for the UK economy, with the continuing effects of geopolitical uncertainty, higher energy costs, inflationary pressures and subdued economic growth all influencing the government’s financial decisions. 

The measures announced have implications for households, savers, investors, pensioners and businesses. While some changes are intended to provide immediate relief to households, others will affect the amount of tax people pay and the incentives to save and invest over the longer term. 

For financial markets, the Budget presents a delicate balancing act. The government needs to demonstrate that it can manage public finances responsibly while providing sufficient support to encourage economic growth. The reaction of the bond market, the outlook for interest rates and business confidence will be important indicators of whether the government’s plans are well received. 

The key question is whether the measures announced will provide a meaningful boost to the UK economy or whether the combination of taxation, government borrowing and ongoing economic uncertainty will continue to weigh on consumer and business confidence. 

Big changes that may affect you directly (more details below): 

  • No raising the personal allowance or tax thresholds. 
  • £100 energy payment per property in Council Tax bands A to D. 
  • Increased personal allowance for pretty much only those who have only the state pension as income. 
  • Scrapping of the Cash ISA allowance changes that were to come in. 
  • Tax on both interest and property income to rise by 4% on every tax band. 

What Does the Budget Mean for Households? 

One of the main themes of the Budget was providing some relief from the rising cost of living. However, the measures are relatively targeted, and the overall effect will differ considerably depending on individual circumstances. 

Income Tax and fiscal drag 

Perhaps one of the most significant announcements was what the Chancellor did not change. Income Tax thresholds will remain frozen, with the Personal Allowance staying at £12,570 until at least April 2031. 

Although this does not represent an increase in headline Income Tax rates, it effectively means that as wages and salaries rise over time, more people will pay tax and some will move into higher tax brackets. This is known as fiscal drag. 

For example, someone receiving a pay rise in line with inflation may find that their take-home pay increases by less than expected because a greater proportion of their earnings becomes subject to tax. Over several years, this can amount to a substantial additional tax burden. 

Help with household energy bills 

Energy costs remain a significant concern, particularly given the uncertainty surrounding global energy supplies. 

The government has announced a £100 payment for approximately 20 million households in England in Council Tax bands A to D, beginning in January 2027. The intention is to help offset the anticipated increase in energy bills. 

The removal of gas standing charges is another change. Instead, these costs will be incorporated into the unit price of gas. This should benefit households that use relatively little gas, although higher users could see their costs increase as a result. 

The government has also extended the temporary removal of VAT on domestic electricity until July 2027. While these measures should provide some assistance, they are unlikely to completely offset the impact of higher wholesale energy prices. 

Wages and benefits 

The National Living Wage for workers aged 21 and over will increase by 3.9% to £13.21 an hour from April 2027. This will provide a welcome increase for lower-paid workers, although employers will need to absorb the additional wage costs. 

Universal Credit will also increase by 4.3% from April 2027, providing some additional support for those receiving benefits. 

Pensions and retirement 

There are some important implications for pensioners. 

The full new State Pension is expected to increase to £13,036 a year from April 2027, taking it above the standard Personal Allowance of £12,570. To prevent pensioners whose only income is their State Pension from being drawn into Income Tax, the government has introduced a new Pension Tax Allowance. This should prevent an additional tax liability for those affected. 

However, the previously announced changes bringing unused pension funds and death benefits into the Inheritance Tax regime from April 2027 remain in place. This is an important consideration for anyone using their pension as part of their estate-planning strategy. Pensions have traditionally been an effective way of passing wealth between generations, and the changes make it increasingly important to review how retirement savings fit into an overall estate-planning strategy. 

Savings and Investments 

There were several announcements affecting savers and investors, some of which will be particularly relevant to those undertaking long-term financial planning. 

Cash ISAs 

The government has reversed the previously announced reduction in the annual Cash ISA allowance. The limit will therefore remain at £20,000 for all age groups, rather than falling to £12,000 for those under 65 from April 2027. 

This is a positive development for cash savers, allowing people to continue sheltering up to £20,000 a year in tax-free savings. 

The Chancellor also announced plans to consult on a new Starter Investment ISA, intended to encourage more people to invest in the stock market. The detail is yet to be finalised, but the intention is to make investing more accessible, particularly for those who have traditionally kept their savings in cash. 

Tax on savings interest 

There is, however, a less welcome development for people holding substantial cash savings outside tax-efficient accounts. 

From April 2027, the tax rates applied to savings interest will increase by four percentage points. Basic-rate taxpayers will pay 24%, higher-rate taxpayers 44% and additional-rate taxpayers 49% on taxable savings interest. 

The Personal Savings Allowance remains unchanged, meaning basic-rate taxpayers can still receive £1,000 of savings interest tax-free and higher-rate taxpayers £500. 

This makes the use of available tax allowances increasingly important. ISAs remain an attractive way of holding cash and investments without creating an additional Income Tax liability on interest or investment income. 

For investors, the retention of the £20,000 ISA allowance is particularly welcome. It reinforces the importance of using available tax-efficient investment allowances as part of a long-term financial plan. 

Housing and the Property Market 

The Budget also included measures aimed at helping first-time buyers get onto the property ladder. 

A new scheme called ‘Your First Home’ is due to launch in February 2027. It will provide eligible first-time buyers purchasing new-build properties with an interest-free loan to help increase their deposit. Buyers with a deposit of just 2.5% could receive additional support to bring their effective deposit up to 15%, subject to eligibility criteria. 

The scheme is intended to make home ownership more accessible, although its success will depend on how many properties qualify and whether the additional demand translates into increased housebuilding rather than simply higher property prices. 

For existing homeowners, the wider economic outlook remains important. Mortgage rates will continue to be influenced by inflation expectations and the Bank of England’s interest-rate decisions. If inflation remains stubbornly high, the prospect of interest-rate reductions could be pushed further into the future, keeping mortgage costs higher for longer. 

The Economic Background 

The Chancellor delivered the Budget against a backdrop of considerable economic uncertainty. The conflict in the Middle East, particularly the disruption to energy markets and shipping through the Strait of Hormuz, has created renewed inflationary pressures. This has made the government’s task considerably more difficult, as higher energy prices threaten to increase household costs while also putting pressure on businesses. 

The Office for Budget Responsibility (OBR) revised its economic forecasts alongside the Budget. It now expects the UK economy to grow by 1.2% in 2026, slowing to just 1% in 2027, before recovering to 1.6% in 2028. Inflation is expected to approach 4% in early 2027, largely reflecting the impact of higher energy prices. 

This presents a difficult environment for the Bank of England. Higher inflation normally creates pressure for interest rates to rise, but a weaker economy would ordinarily argue for lower rates to encourage borrowing and investment. The Bank therefore faces a difficult balancing act, and the timing of any future interest-rate changes remains uncertain. 

The Impact on Businesses 

Businesses face a mixed picture following the Budget. 

On one hand, the government is attempting to encourage investment through additional funding for the National Wealth Fund and British Business Bank. A further £20.4 billion has been allocated to these institutions over the coming years, with the intention of supporting business investment, infrastructure and employment. 

There is also a particular focus on defence, technology and artificial intelligence, including investment and lending of up to £5 billion over four years to support defence-related businesses and supply chains. 

However, businesses will continue to face challenges from higher employment costs, energy prices and taxation. The temporary increase in the Bank Surcharge, which raises the additional tax on bank profits by three percentage points, is intended to help fund household energy support. 

The government has also made changes to business rates relief, particularly affecting certain sectors, while providing some targeted assistance to smaller businesses. 

The concern is that while the government wants businesses to invest, expand and employ more people, the combination of higher operating costs and an uncertain economic outlook could make companies more cautious. Business investment is an important driver of productivity and long-term economic growth, so this will be an area worth watching over the coming months. 

The Impact on Financial Markets 

From an investment perspective, the Budget was always going to be important, particularly given the recent concerns surrounding UK government borrowing and the cost of servicing the national debt. 

The bond market has become increasingly sensitive to government borrowing, with investors demanding higher returns to compensate for the risks associated with lending to governments. UK gilt yields had risen considerably in the weeks preceding the Budget, reflecting concerns about inflation, borrowing and the government’s ability to maintain control of public finances. 

One of the most important announcements was the Chancellor’s confirmation that the government intends to maintain its existing fiscal rules. He stated that the government would retain £15 billion of headroom against its fiscal targets in 2029/30, increasing to £22 billion in 2030/31. 

This is the financial buffer available before the government would breach its own borrowing targets. Although smaller than previously anticipated, maintaining this headroom was important in reassuring investors that the government was not abandoning fiscal discipline. 

The immediate market reaction was relatively subdued. UK government bond yields edged lower following the announcement, while sterling remained broadly stable. The FTSE 100 also finished slightly higher. 

Bank shares were among the beneficiaries, as the increase in taxation on banks was smaller and more temporary than some investors had anticipated. Overall, markets appeared reasonably comfortable with the measures announced, although there was little to suggest that the Budget would provide a significant catalyst for a sustained rally in UK assets. 

UK Government Bonds (Gilts) 

The outlook for gilts will depend heavily on whether the government can deliver the borrowing reductions it has forecast. 

If investors believe the government is managing its finances responsibly, this should help maintain confidence in UK government debt and potentially reduce the additional yield investors demand for holding gilts. 

However, there is relatively little room for error. The government’s financial headroom is not particularly large, and any deterioration in economic growth, unexpected spending commitments or further increases in borrowing could put pressure on gilt prices and push yields higher. 

There is also the wider inflation problem. If energy prices remain elevated and inflation proves more persistent than expected, the Bank of England may be forced to keep interest rates higher for longer. This would create an additional challenge for the government, as higher interest rates increase the cost of servicing its debt. 

UK Equities 

For the UK stock market, the Budget provides a relatively neutral starting point. 

Companies operating in sectors benefiting from increased government investment, including defence, infrastructure and technology, could see opportunities emerge over the longer term. 

Banks also benefited from the announcement that the additional tax on their profits would be lower than some investors had feared. 

However, weaker consumer spending, higher business costs and the prospect of slower economic growth could continue to weigh on domestically focused companies. 

It is also worth remembering that the FTSE 100 derives a significant proportion of its earnings from overseas markets. Consequently, the performance of the index is not necessarily a direct reflection of the health of the UK economy. 

Sterling 

Sterling’s performance will depend on a combination of the government’s fiscal credibility, the relative attractiveness of UK interest rates and the wider global economic environment. 

A Budget that reassures investors about government borrowing should help support the currency. Conversely, any deterioration in confidence could lead to sterling coming under pressure. 

For international investors, currency movements will remain an important consideration when assessing the returns available from UK investments. 

The Bigger Picture – Can the Budget Deliver Economic Growth? 

Perhaps the biggest question surrounding this Budget is whether it will do enough to address the UK’s longer-term economic challenges. 

The government has attempted to strike a balance between supporting households, encouraging investment and maintaining control over public borrowing. However, these objectives are not always compatible. 

The UK continues to face relatively weak productivity growth, high levels of government debt and a significant interest bill. The OBR forecasts suggest that economic growth will remain modest, while inflation is expected to rise again in the short term. 

The government is also relying on a relatively small amount of financial headroom and some significant future spending restraint to meet its fiscal targets. This leaves the public finances vulnerable if economic conditions deteriorate or spending pressures prove greater than anticipated. 

There is also the question of business confidence. Lower taxation and greater certainty around future government policy could encourage companies to invest, but businesses need to see evidence of sustained economic growth before committing significant capital. 

Ultimately, the success of the Budget will be judged not simply by whether the government meets its borrowing targets, but by whether it can create the conditions for stronger economic growth, higher productivity and improved living standards. 

Highlights and Risks 

Highlights 

  • The government has maintained its commitment to fiscal discipline, with £15 billion of headroom against its fiscal rules in 2029/30. 
  • The £20,000 annual Cash ISA allowance has been retained, avoiding the previously proposed reduction. 
  • Targeted assistance with household energy bills should provide some short-term relief. 
  • Increased investment in defence, infrastructure and technology could support certain areas of the UK economy. 
  • The immediate reaction from the gilt market and sterling suggests investors were broadly reassured by the Budget. 

Risks 

  • Frozen Income Tax thresholds will continue to increase the effective tax burden through fiscal drag. 
  • Higher taxes on savings interest will reduce returns for some cash savers holding money outside ISAs. 
  • Persistent inflation could prevent the Bank of England from reducing interest rates as quickly as hoped. 
  • Weak economic growth could undermine government tax receipts and put pressure on public finances. 
  • Higher borrowing costs and government debt levels remain a concern for longer-term financial stability. 
  • Geopolitical uncertainty, particularly the conflict in the Middle East and its impact on energy prices, could create further economic disruption. 

Conclusion and Outlook 

The 2026 Budget was relatively cautious, with the Chancellor prioritising financial stability and targeted support rather than announcing sweeping changes to the economy. 

For households, there are some welcome measures, particularly around energy costs, Cash ISAs and support for first-time buyers. However, frozen Income Tax thresholds and higher taxes on savings interest mean that many people will continue to face pressure on their disposable income. 

For investors, the Budget has provided some reassurance that the government intends to maintain control of public finances. The relatively calm reaction from bond and currency markets suggests that investors were broadly comfortable with what was announced. 

However, it would be premature to suggest that the Budget has resolved the UK’s underlying economic problems. The outlook remains heavily dependent on inflation, interest rates, global energy prices and the government’s ability to deliver sustainable economic growth. 

From an investment perspective, we would not see the Budget as a reason to make significant changes to long-term portfolio positioning. The importance of diversification remains, particularly while economic and geopolitical uncertainty continues to influence markets. 

The UK still offers opportunities, particularly where valuations are attractive and companies are positioned to benefit from longer-term investment in infrastructure, technology and defence. However, these opportunities need to be considered alongside the risks associated with the wider economic environment. 

Ultimately, the Budget may have bought the government some breathing space, but the real test will be whether it can translate its announcements into stronger economic growth and improved confidence over the coming years. 

Editorial note: This update reflects the Budget announcements and information available as at 1 November 2026. Some measures, particularly the proposed Starter Investment ISA, remain subject to further consultation and detail. 

This follows the established market-update approach, with an emphasis on the implications for household finances, savings, investments and the wider economy, rather than simply listing the Chancellor’s announcements.