Healey's Budget: bank taxes, first-time buyers and fuel duty in focus

Chancellor Healey will set out the UK Budget, with ministers trying to keep speculation about its contents to a minimum as they balance support for households and defence spending against Labour's manifesto tax commitments and the government's fiscal rules.

Those two rules, set out by previous chancellor Rachel Reeves and which the new leadership has vowed to follow, are that the government must not borrow to fund day-to-day public spending by the end of this parliament, and that government debt must be falling as a share of national income by then. Healey and Prime Minister Andy Burnham face a difficult balancing act.

In March, the Office for Budget Responsibility (OBR) calculated that the first rule would be met with headroom of £23.6bn. That buffer is expected to have shrunk, though analysts disagree by how much: KPMG estimates £12bn and the Institute for Fiscal Studies £20bn. Rising government borrowing costs increase debt interest payments, while higher inflation can push up tax revenues.

Bank taxes and first-time buyers

Bank bosses have told the BBC they expect Healey to raise taxes on the sector, which has reported bumper profits and drawn union calls for higher taxes. The Treasury could raise a 3% surcharge on profits, lowered from 8% under the previous Conservative government, or increase the bank levy based on the size of balance sheets.

Further details are expected on the Your First Home scheme, aimed at helping first-time buyers in England buy a property. It would let people purchase a new-build home with a 2.5% deposit and provide a loan worth 20% of the property's value. The BBC understands the eligibility threshold will be £110,000 for a combined income outside London and £140,000 in the capital, higher than the £90,000 and £110,000 that had prompted concerns about excluding couples such as teachers, nurses or police officers. Changes to Capital Gains Tax have been ruled out.

Business rates, fuel and energy

The Times has reported that online retail giants such as Amazon and eBay are expected to be made responsible for collecting tax owed by traders using their platforms, with the money used to cut business rates for High Street shops by raising the threshold at which small companies start paying from £12,000 to £18,000.

Fuel duty has been frozen since March 2022, and Sir Keir Starmer's government continued the freeze, deciding in May to push back a planned 3p increase in September until the end of this year. Healey told the BBC in late September that the Budget was the time and place to deal with rising petrol and diesel costs, but gave no details on whether the freeze would be extended again.

Household energy bills are set for their biggest rise in four years in January, with a typical annual bill forecast to jump by £276. There has been speculation that Healey is planning energy bill help for households on certain benefits. The High Value Council Tax Surcharge, dubbed the mansion tax, applies to properties in England valued above £2m from April 2028, and reports suggest extending it to properties worth more than £1.5m has been ruled out.

Healey has said the government plans to slash "form-filling and pointless paperwork" to save UK businesses up to £800m.

Economy and how the day runs

The UK economy grew by 0.6% in the first three months of the year and 0.5% in the April-to-June quarter, then by 0.4% in July and 0.1% in August, both stronger than expected. Analysts say the economy is proving resilient to energy price shocks caused by the US-Israel war with Iran, which led to the effective closure of the Strait of Hormuz. Economists expect growth to slow as those costs weigh on households and businesses.

Inflation hit 3.1% in the year to August, the highest rate in five months and above the Bank of England's 2% target, driven by higher petrol and diesel prices. The Bank held interest rates at 3.75% in September for the sixth time in a row, but said they were likely to rise if high energy prices persist.

The Budget speech usually starts at about 12:30 UK time, after Prime Minister's Questions, and lasts about an hour. It is broadcast live on the BBC iPlayer and the BBC News website. Conservative MP Kemi Badenoch, the Leader of the Opposition, will respond in the House of Commons. MPs debate the measures for four days before voting; if approved, tax changes can take effect immediately, but the government must pass a finance bill to make them permanent.

Source: BBC Business.