Healey Cuts Bank Windfall Tax Expectations to Fund £100 Household Grants

Chancellor John Healey allocated £2.6 billion to provide 20 million households with a one-time payment of £100 in his first budget. The measure targets homes in council tax bands A through D and is part of a wider effort to lower energy costs for consumers.

The funding for this package comes from a temporary windfall tax on banks. Healey will double the additional levy on bank profits from 3% to 6% for a 15-month period starting in January. This rate is lower than the 8% increase that industry figures had anticipated. To balance the books, the Chancellor also announced a 2 percentage point increase in income tax for landlords and savers, a move that caught many observers by surprise.

Market reaction to the bank tax was positive. Shares in NatWest and Standard Chartered rose by more than 4% following the announcement. Healey acknowledged the contribution of the financial sector, stating, "I celebrate and I am grateful for the role that you play." The budget also includes an extension of the VAT cut on electricity bills until next July. Additionally, the fuel duty rises planned by previous Chancellor Rachel Reeves have been cancelled.

Healey framed the economic outlook as challenging due to the war in the Middle East. He noted that higher inflation linked to the conflict would add £14 billion to government interest costs. The Office for Budget Responsibility has reduced its growth forecast for next year to 1%, down from the 1.6% projected in the spring. Despite these headwinds, Healey insisted that Labour's deficit reduction plans remain on track.

The fiscal buffer required by Labour's first fiscal rule has narrowed. Headroom against the rule stood at £15 billion, down from the £24 billion Reeves set aside in March. Healey promised to rebuild this reserve to £22 billion by 2030-31. He described the strategy as one of using the buffer when necessary and rebuilding it when possible.

For businesses, the threshold for business rates relief in retail, hospitality, and leisure will increase from £12,000 to £18,000. This change is funded by higher taxes on gambling and vape shops. The budget also outlines measures for social housing, including cheaper borrowing for councils and VAT relief on land sales to social providers. It confirms the My First Home mortgage scheme for first-time buyers, a policy first introduced at Labour's party conference in September.

Healey warned that high oil prices are likely to push the energy price cap higher in January. To address this, he signaled a long-term overhaul of billing structures. He described this as a new cost control framework designed to drive down all aspects of energy bills for consumers.