Budget 2026
1. Executive summary
The Budget comes amid global economic storms caused by the conflict in the Middle East and the illegal invasion of Ukraine, which have pushed up costs for families and businesses. In response, this Budget matches immediate action today with the big structural changes needed for the future.
The Budget meets the moment to steer Britain through this period of global pressures. It will provide breathing space for families and businesses, particularly with energy costs. At a time when households and businesses are under pressure, the Budget rejects broad-based tax rises, and is protecting most individuals and businesses from tax increases.
At the same time, this Budget commences the big changes needed to put the country on a better path. It will unlock good growth in every postcode by putting places in control of their economic future, and by backing a new wave of wealth creators. It will kickstart work on the big challenges facing the country to give people hope for the future, from bringing energy bills down for good, to building more social housing, to boosting the UK’s national security. This will build Britain’s resilience to make the country more secure and better off.
Fiscal discipline in this Budget will provide the bedrock for the economy to continue to grow and to deliver the vision that the Prime Minister and Chancellor will set out at the 10 Year Plan and the next spending review.
It is a Budget that will deliver breathing space today, and fresh hope for the future.
1.1 The economy and the public finances
Since the start of the conflict in the Middle East, all G7 countries have seen their borrowing costs rise to, or near to, highs not seen for decades. This means the UK is spending more on servicing its debt, with the Office for Budget Responsibility (OBR) forecasting the UK will pay an average of £14 billion per year in extra government debt interest compared to the Spring.
The UK economy is showing signs of resilience. Since the start of the Parliament, whole economy investment is up by 6.9%, business investment is up by 7.5%, and productivity growth exceeded 2% last year. The UK recorded the joint-fastest GDP growth in the G7 in the first half of this year, and the OBR has upgraded its growth forecast for 2026 to 1.2%. More recent GDP data has continued to exceed expectations, with growth of 0.7% in the three months to August alone.
1.2 Breathing space for Britain
Despite this resilience, the conflict in the Middle East has hit the UK’s growth outlook. Many families continue to feel their finances being squeezed. The cost of doing business – from energy bills to regulation to planning constraints – continues to weigh on investment and growth.
Fiscal discipline underwrites every promise this government makes. Reducing borrowing increases the UK’s ability to absorb global shocks, helps bear down on inflation, and creates breathing space for households and businesses. Fiscal discipline underpins economic stability, national security and sustainable growth. The government has therefore ensured that all policy at this Budget is fully funded over the forecast.
At a time when people, businesses, and the economy are under pressure and need breathing space, the Budget rejects broad-based tax rises. Instead, the government has chosen to use some of the headroom established last year to absorb the impact of higher debt-interest costs from the conflict in the Middle East.
The government continues to meet the fiscal rules with a buffer:
- The stability rule is met by £15 billion in 2029-30, before rising to £22 billion in 2030‑31. Higher debt interest costs from the conflict more than account for the reduction of headroom in 2029-30 since Spring. This is what a buffer is for – to be used when needed before being rebuilt as soon as conditions allow.
- The investment rule is met by £24 billion in 2029‑30, putting debt on a stable trajectory while continuing to deliver over £120 billion of additional investment this Parliament compared with the previous government’s plans.
The OBR’s forecast shows the government’s plans reduce borrowing over the forecast and put debt on a downward trajectory: borrowing falls to 1.8% of GDP by 2031‑32 and debt is lower at the end of the forecast (2031‑32) than it is now (2026‑27).
The IMF has forecast that the UK’s fiscal plans stand out from those of its peers. The UK has delivered the biggest reduction in borrowing in the G20 this year, and is on track to have the lowest level of borrowing in the G7 from 2029.
Energy bills
This Budget represents a shift in the government’s approach to energy. The conflict in the Middle East has put bills up for households and businesses. This Budget provides immediate relief, while offering longer-term reform to make sure the energy system works for households and businesses.
The government has made substantial progress on clean power. The focus now is to unleash cheap electricity, cutting bills to reindustrialise the country. The government must be disciplined in managing every aspect of energy costs, while building the assets needed to provide energy security to protect British businesses and households from volatile international gas prices, and to build the grid, which has not kept pace with demand. This Budget is the start of a new energy pathway on which the 10 Year Plan will build. This government will prioritise cheaper energy – to help British businesses to compete, and to provide breathing space for households. Cheaper electricity will boost electrification, increasing the UK’s energy security and helping to decarbonise the whole economy. This Budget will:
- Support households with the cost of energy – extending the VAT cut to electricity to July 2027, which is expected to take around £50 off the annual Ofgem price cap in April 2027, and launching a £2.6 billion Household Energy Payment, which will provide a £100 payment directly into bank accounts from January 2027 for households in England in council tax bands A-D, supporting up to 20 million households. Devolved governments will receive their share of this funding via the Barnett formula. To help fund this, the government is temporarily increasing the Bank Corporation Tax Surcharge from 3% to 6% for 15 months from 1 January 2027 to 31 March 2028.
- Extend the 5p fuel duty cut and freeze, while maintaining the Heavy Goods Vehicle (HGV) road tax holiday, to 1 July 2027 — keeping fuel duty as low as at any point in over 16 years and substantially lower in real terms, while the red diesel rate remains at its lowest level for over 20 years.
Alongside this immediate support, this Budget kickstarts the long-term action required to get energy costs down for good:
- Controlling energy costs – no new policy costs will be put on bills until a comprehensive Cost Control Framework is in place at the spending review in 2027, which will set budgets for components of energy costs, including policy costs.
- Prioritising a cheaper energy mix and procuring new generation only where it lowers bills, benefits the system, and can be accommodated by the grid.
- Progressing next steps in breaking the grip of gas on bills with a consultation published alongside this Budget on wholesale Contracts for Difference, fixing the price paid to some renewable projects to protect British homes and businesses from volatile gas prices.
From 2027 onward, the government will:
- Deliver the British Industrial Competitiveness Scheme, meaning 10,000 energy intensive manufacturing firms will get a 20-25% electricity discount, starting in April 2027, including a back payment for 2026-27.
- Abolish gas standing charges, coupled with targeted mitigations to ensure this is delivered fairly.
- Introduce a new Energy Debt Circuit Breaker to tackle energy debt, saving all billpayers around £30 by 2030.
- Reform electricity standing charges – with further details to be announced next year.
- Scrap the planned new tax on gas bills (the Gas Shipper Obligation), so that government rather than consumers fund the costs of hydrogen projects.
Targeted support for households
The Budget also gives households breathing space by:
- Temporarily reducing tariffs on over 100 food and drink products.
- Delivering the new Pension Tax Allowance – meeting the government’s commitment that pensioners with incomes at or under the value of the full new State Pension will not be brought into paying tax because of State Pension uprating in this Parliament.
- Supporting working people by increasing the National Living Wage and the National Minimum Wage rates by 3.9%, expanding parental pay, (including to self-employed fathers and partners for the first time), and permanently increasing the tax-free mileage rates for those who rely on their own vehicle for work.
Targeted support for businesses
Small businesses create jobs and keep communities thriving. In addition to helping businesses with the cost of energy, the Budget will address wider costs on businesses by: