Healey targets energy bills and bank taxes in first UK budget

British households face lower heating costs starting this winter as the government removes standing charges from gas bills. Finance Minister John Healey also extended a tax break on electricity for millions of homes through July 2027. These moves aim to offset the cost of living squeeze that pushed annual inflation to 3.5% in September.

Healey delivered his first fiscal budget on Wednesday. The plan pairs cost-of-living relief with increased spending on defense and artificial intelligence. He described the need for "radical change on energy" while noting that Britain's status as a net energy importer exposes it to external shocks. He attributed recent price increases partly to the U.S.-Iran war, a conflict he said the country did not want.

The budget includes a £100 check for residents in the four lowest local housing tax bands. This measure will cost the Treasury £2.6 billion. Tariffs on more than 100 grocery items will also drop. Small firms in hospitality, retail, and leisure sectors will receive wider business rates relief. The minimum wage will increase by 3.9%, and a planned reduction in tax-free savings thresholds was canceled.

On the technology front, Healey allocated hundreds of millions of pounds for AI security and sovereignty. He stated that the state's role in the sector is clear. A new covenant for data centers requires facilities to invest in local communities, create jobs, and protect water supplies. In exchange, these critical facilities will receive grid connections and permission to build onsite generation where needed. Founders will benefit from a reduced capital gains tax rate on profits up to £10 million.

Defense spending plans were outlined alongside the economic measures. The budget includes £10 billion in additional economic and military support for Ukraine. Healey stated that Britain will stand with Ukraine for as long as it takes. He promised to detail the path to NATO's goal of spending 3.5% of GDP on defense by 2035 at next year's Spending Review. The interim target is 3% by 2030.

To fund the package, Healey said revenue would be raised from those who can afford to pay. No tax increases were applied to wages or dividends. Banks, gambling businesses, and vape shops will face higher taxes. The bank surcharge will rise by 3 percentage points to 6% as a temporary measure. This increase begins in January and ends 15 months later.

Market reactions were mixed but generally positive. Shares in Barclays, Lloyds Banking Group, and NatWest rose between 2.5% and 3.3% after the announcement. The increase was less severe than some sector players had feared. JPMorgan Chase criticized the move, saying singling out the industry lacks principle. CEO Jamie Dimon has previously suggested the bank might rethink its London headquarters expansion if the government remains hostile. The company said on Wednesday it remains committed to the U.K.

The Office for Budget Responsibility forecast £15 billion of fiscal headroom by 2029/30. It confirmed that Healey's plans meet existing fiscal rules. The body expects debt to rise to 83.8% of GDP next year before falling to 81.7% by 2032. It projects economic growth of 1.2% this year, 1% in 2027, and 1.6% in 2028.

Gilt yields fell as Healey spoke. The 10-year yield dropped 2 basis points to 5.323%. Sterling slipped slightly against the dollar and fell 0.2% against the euro. The next major fiscal update is scheduled for next year's Spending Review, where the defense spending roadmap will be detailed.