UK chancellor outlines fiscal targets and energy relief measures in 2026 budget

Chancellor John Healey delivered the 2026 budget, noting that it arrives amid global uncertainties that are affecting the domestic economy. He said the government will adopt a new approach to navigate these challenges and emphasized fiscal discipline as a top priority.

Healey announced that debt interest payments will rise by £14 billion this year. He reaffirmed the commitment to meet the fiscal rule that day-to-day spending be covered by tax receipts and the investment rule that public sector net financial liabilities fall as a share of GDP by the third year of the forecast. The Office for Budget Responsibility projects a borrowing rate of 4.2% of GDP this year, falling to 1.8% by 2030-31, and forecasts GDP growth of about 1.2% in 2026, tapering to around 1.6% by 2031. Government debt is expected to peak at 83.8% of GDP next year before gradually declining.

In the energy sector, the budget includes several cost-of-living measures. A levy that funded hydrogen projects will be removed, and older renewable contracts will move to fixed-price terms. The VAT cut on energy bills will be extended through July, reducing the annual price cap by £50. Standing charges on gas bills will be abolished for 23 million homes, saving an average of £45 per household per year. Additionally, 20 million households in council-tax bands A to D will receive a one-off £100 payment, funded at a cost of £2.6 billion.

Fuel duty will be frozen for the 16th consecutive year, and the mileage rate for work-related travel will rise from 25p to 30p per mile. Import tariffs on more than 100 items, including baked beans and chocolate, will be removed to lower retail prices. Self-employed fathers will become eligible for paternity pay for the first time.

For small businesses, the threshold for rate relief will increase from £12,000 to £18,000, benefiting around 70,000 firms. The budget also raises the duty on high-stake gambling machines from 20% to 25% and removes business-rates relief for adult gaming centres and vape shops. Online marketplace sellers will face stricter VAT enforcement.

Tax compliance will be bolstered with new HMRC funding and stronger powers to recover overdue taxes. The tax-free allowance for cash ISAs will be restored to £20,000. Banks will face an additional 3% surcharge for 15 months, with the proceeds earmarked for energy-bill support.

Investment initiatives include £20.4 billion for the national wealth fund and the British Business Bank, support for Rolls-Royce’s next-generation jet engines, a £500 million allocation for AI safety, and a new “British datacentre covenant” to protect local water supplies and improve grid connections. Entrepreneurial incentives feature a higher tax-free earnings limit for new ventures (£3,000) and a 10% founders’ relief on lifetime gains up to £10 million.

The budget also outlines regional spending, such as £10 million for a market hall in Stafford, £10 million for Bristol’s Temple Quarter, £3 million for youth employment projects in Plymouth, and £50 million to upgrade Leeds College of Building. A roadmap for fiscal devolution aims for full local retention of business-rates revenue by the end of the decade, with interim shares allocated to mayoral authorities and provisions for visitor levies.

"Our priority is to give people fresh hope for Britain’s future," Healey said.

"We are unshakeably committed to net-zero and to delivering cheaper energy from clean sources," he added.