Healey cuts bank tax and boosts energy support in first budget

Chancellor John Healey will present his first budget on Wednesday, aiming to stabilize the economy under Prime Minister Andy Burnham's leadership. Healey has focused the plan on immediate cost of living relief and a targeted tax hike on the financial sector. He pledged in the summer to avoid the leaks that plagued the previous budget under Rachel Reeves, though key details have already surfaced.

The core of the new tax strategy involves a levy on banks, which have reported record profits. HSBC announced on Tuesday that its profit rose 32% to approximately £7.2 billion. One option under consideration is reversing a previous reduction in the bank surcharge from 8% to 3%, a move that could generate more than £2 billion annually. Healey cannot raise income tax, national insurance, or VAT without breaking manifesto promises, making the banking sector the primary target for new revenue.

To help households, the government plans to spend more than £1 billion on energy bill support, primarily through an expanded Warm Home Discount. This follows Prime Minister Burnham's suspension of VAT on electricity for six months. Gas standing charges are also expected to be scrapped. Additionally, the budget will introduce a revamped 'your first home' scheme, offering first-time buyers a 20% equity loan on new-build homes with a minimum deposit of 2.5%.

Consumer measures include extending parental pay to over 150,000 additional parents annually, including self-employed fathers. The current benefit is worth £388. The government will also remove import tariffs on more than 100 products, such as baked beans, chocolate, and gherkins, and end the carer's allowance cliff-edge. These steps are part of Healey's promise to provide consumers and businesses with breathing space.

The budget faces a tight fiscal environment. Day-to-day spending and public investment total roughly £1.42 trillion for the year. About £100 billion of that goes toward debt interest, which has reached multidecade highs. Analysts blame the recent spike in borrowing costs on the Gulf conflict, which pushed oil prices above $110 a barrel. Healey is currently spending about £1 billion a month more than originally forecast.

The Resolution Foundation estimates that the £24 billion buffer from the last tax-raising budget has halved to £12 billion. Economists at ING suggest the Treasury would prefer headroom of about £15 billion. Online marketplaces like Amazon and eBay may face higher taxes, potentially raising up to £1 billion by forcing them to collect VAT for large sellers. This revenue could fund a rise in the business rates threshold for small shops from £12,000 to £18,000.

Defence spending will see a £4.7 billion gap closed through cuts to other departments. A roadmap to reach 3% of GDP for defence by 2030 is delayed until next year's spending review. Alcohol duty is set to rise with RPI, increasing the tax on a pint from 50p to 52p. The fuel duty freeze is expected to continue, a decision that could cost up to £2.7 billion next year according to the Institute for Fiscal Studies.

Devolution receives a £150 million boost for mayoralties and local authorities, along with a £1.5 billion borrowing facility. Healey has also scrapped plans for a golden visa route for wealthy overseas applicants. Several other taxes, including the mansion tax and inheritance tax, are expected to remain unchanged. Treasury officials have indicated that a lower £1.5 million threshold for the mansion tax has been ruled out.