Healey Readies £1.42tn Budget With Bank Levy and Cost-of-Living Measures

John Healey will deliver a budget on Wednesday built around a squeeze he cannot escape: rising debt costs are eating the financial buffer he needs to fund the priorities of Prime Minister Andy Burnham's government. Healey is constrained by promises to leave income tax, national insurance and VAT rates alone, while sticking to the fiscal rules set by his predecessor, Rachel Reeves.

The scale of the task is large. Healey will allocate about £1.42tn this year for day-to-day spending and public investment. Roughly £100bn of that goes to debt interest, a figure pushed up by the multidecade highs in the rate the government pays to borrow. The Gulf conflict launched by the US and Israel at the end of February drove oil above $110 a barrel and pushed gas prices to levels not seen since late 2022. Government borrowing in this financial year has fallen against 2025-26, but by less than the Office for Budget Responsibility forecast in March, with Healey spending about £1bn a month more than projected.

The Resolution Foundation thinktank estimates the £24bn buffer built up in the last tax-raising budget has likely halved to £12bn. ING economists say the Treasury would prefer headroom nearer £15bn. That cash would otherwise cover cost-of-life measures, higher defence spending and Burnham's devolution plans.

On household support, the Treasury plans to extend parental pay to more than 150,000 additional parents a year at a value of £388, including self-employed fathers and partners previously excluded. Healey will also end the carer's allowance cliff-edge, so unpaid carers no longer lose more than their allowance once they hit the weekly earnings limit, and remove import tariffs on more than 100 products including baked beans, chocolate and gherkins. Energy support will exceed £1bn, mostly through an expanded Warm Home Discount, with an additional £100 potentially added to the existing £150 means-tested yearly rebate funded by taxes rather than billpayers.

For first-time buyers, the budget will detail a scheme offering a 20% equity loan toward a new-build home, with an initial interest-free period and a 2.5% minimum deposit. Healey aims to close a £4.7bn gap in the defence investment plan he inherited from Keir Starmer, with cuts to other departmental budgets expected to supply most of the money. A roadmap for hitting the 3% of GDP defence target by 2030 will come at next year's spending review.

Revenue measures include a levy on banks. HSBC reported Tuesday that its profits had risen 32% to about £7.2bn. One option would reverse Jeremy Hunt's cut of the bank surcharge from 8% to 3%, raising more than £2bn a year. Online marketplaces such as Amazon and eBay could be required to collect VAT on behalf of large-scale UK and overseas sellers, raising up to £1bn, which could fund a rise in the business rates threshold from £12,000 to £18,000 for small high-street shops. Alcohol duty is likely to rise with RPI, taking the tax on a pint from 50p to 52p.

Healey is not expected to touch several other areas. Treasury officials have played down changes to the mansion tax, which imposes an annual charge up to £7,500 on properties above £2m from April 2028; London MPs pushed back against lowering the threshold to £1.5m. He has rejected calls from senior Labour MPs to align capital gains tax with income tax rates. Fuel duty is expected to stay frozen despite a scheduled 3p a litre rise in January and 2p in March; the Institute for Fiscal Studies puts the cost of a one-year extension at up to £2.7bn. No changes to inheritance tax are expected.

The budget also carries a £150m funding boost for mayoralties and local authorities alongside a £1.5bn borrowing facility, plus £285m in good growth funding next year for local leaders to spend on housing, transport links or high street regeneration. Healey has scrapped Treasury plans for a new visa route aimed at wealthy overseas applicants.