Chancellor of the Exchequer John Healey was never going to have much room for big giveaways or announcements this Autumn. With persistently low growth and the cost of living impacted by global events, any fiscal headroom that he might have enjoyed was under pressure from the moment that he took office.

With global uncertainty here to stay, the markets were watching Healey’s first budget carefully. At the top of the Chancellor’s agenda, then, was to demonstrate that he was a safe pair of hands.  

As a result, we got a safe but rather unexciting set of measures that didn’t upset the apple cart, kicking various big decisions down the road.

“With little damaging speculation in the run up, relatively minor commitments and few gimmicks, it was largely a ‘steady-as-she-goes’ budget which will give the Chancellor the breathing space he needs for big decisions in the 10-year plan and Spending Review,” said Alan Vallance, ICAEW Chief Executive.

Economic outlook

The impact of the war in Iran is stark in the Office for Budget Responsibility’s (OBR) revised forecasts for 2026/27. It expects Consumer Price Index inflation to hit 3.5.% in 2017, up from the 2% expected back in March. GDP growth has also been revised down, from the previous prediction of 1.5% growth to 1% in the current forecast. This is a direct result of rising energy prices, the OBR report states.

On the assumption that energy prices come down across the next year, the OBR predicts inflation to fall back to 2% by 2028, and GDP will return to “the level expected” in March of 2030.

Suren Thiru, ICAEW Chief Economist, said: “The OBR’s latest forecasts offer markedly more storm clouds than sunshine, with this year’s marginal growth upgrade lost in a fog of painfully weaker growth in later years amid rising inflation, higher interest rates and squeezed fiscal headroom.”

While the budget contained several short-term fixes, the lack of significant measures to tackle the structural barriers holding back economic growth leaves the UK vulnerable to external shocks while fiscal headroom remains under pressure.

Thiru added: “This relatively low-key budget likely contains enough fiscal discipline to keep the UK off global bond markets’ radar for now, clearing the way for rate-setters to begin gradually raising interest rates, almost certainly starting next week."

No significant employment tax increases

Employment taxes were left relatively untouched in the budget, in welcome news for businesses. However, the 3.9% increase in the national minimum wage and national living wage is a double-edged sword, according to Thiru.

He said: “Though it could help ease cost-of-living pressures for some workers, it may dampen hiring by raising employment costs, particularly as businesses continue to shift towards greater automation.”

Energy measures

Given the impact of energy costs on the UK’s economic outlook, it was perhaps unsurprising that the Chancellor chose to lead with energy measures. The VAT cut to electricity was extended to July 2027, and a Household Energy Payment of £100 will be paid directly into the bank accounts of households in England in A-D council tax bands, funded by an increase in the bank corporation tax surcharge from 3% to 6% for 15 months, from 1 January 2027.

For businesses, the Chancellor announced the British Industrial Competitiveness Scheme, coming into effect from April 2027, which will help eligible manufacturers cut electricity bills by up to 25%. Like many measures for businesses in this budget, it is sector-specific and expected to benefit around 10,000 businesses.

The main rate of the climate change levy on electricity will be frozen from 1 April 2028, on top of the removal of carbon price support from April 2028 announced earlier this year. This will remove £18/tCO2e on fossil-fuel powered electricity generation.

The 5p fuel duty cut and freeze was extended to 1 July 2027, while maintaining the heavy goods vehicle (HGV) road tax holiday.

While these small measures are welcome, they shave small amounts from energy bills. Longer term plans outlined in the budget focused on increasing domestic energy supplies, primarily through renewables and nuclear power. Such an approach should make UK energy more resilient in the long term, while doing little for the here and now.

Business rate pressures eased for certain sectors

The biggest announcements for businesses concerned business rates, though again, these measures were targeted at a few critical sectors.

Pubs, music venues and social clubs will receive an additional 20% reduction in business rates. Meanwhile the small business rate relief threshold was increased, taking more retailers and hospitality businesses out of requirements to pay business rates.

The government plans to fund this through a crackdown on VAT for online sales over £90,000, with requirements for online marketplaces to collect VAT on sellers’ behalf. This will come in from October 2027.

All other retail, hospitality, and leisure properties will have their business rates frozen for two years.

Support for entrepreneurs and investment

The Chancellor made several welcome announcements to encourage growth, in particular for those looking to start a business.

First, a new capital gains tax (CGT) founders’ relief, offering a reduced 10% CGT rate on up to £10m of lifetime gains for high-risk, fast-scaling businesses.

Research and development tax relief administration will also be simplified and venture capital schemes improved to encourage more businesses to take advantage of them.

Measures to increase access to finance for start-ups and scale-ups were also included, with £5bn more added to the British Business Bank’s financial capacity. The bank has been given £1.4bn to invest in equity funds that back high-growth businesses and £450m for a new venture-debt product aimed at innovative firms.

For side businesses, the income tax trading allowance will increase from £1,000 to £3,000 from 6 April 2027.

The government also plans to pilot a young entrepreneurs allowance to encourage young people to start businesses, supporting them with living costs in the first year of their business.

• Read more about budget measures affecting businesses

More investment in AI

The budget addresses the risks associated with the growth in AI, with an additional £120m for the AI Security Institute, and a new national AI biosecurity initiative.

Cyber security defences will receive £154m, with £40m for a National Agentic Security Unit, that will respond to incidents arising from rogue AI agents. 

A further £140m will go to the Sovereign AI Unit to help UK AI companies to scale. It also announced a data centre covenant to establish tests that data centres need to meet to ensure they don’t damage communities and further UK economic interests.

Good MTD news for taxpayers

In good news for eligible taxpayers and their agents, the soft landing for Making Tax Digital (MTD) for income tax is still in place for the next cohort of taxpayers to join it.

Taxpayers joining next April will not receive penalties for late submission of their first four quarterly updates, across the 2027/28 tax year.

Other taxpayer groups will have their roll-out of MTD income tax deferred “until further notice”.

• Read more about budget measures related to MTD

Tax increases for landlords

Those earning income tax on property and savings were among the biggest losers from the budget, with the income tax rate on property and savings increasing from 20% to 24% from April 2027.

Closing ‘tax loopholes’

Healey is hardly the first Chancellor to declare that funding for his (admittedly modest) measures will be funded by improvements to the tax system to increase tax intake.

As ICAEW has made clear in its recent campaign on tax reform, the UK tax system has some issues that need to be addressed to improve tax collection and reduce stress and complexity for taxpayers and agents.

Most of what was announced builds on the HMRC transformation roadmap and is short on detail, but the government wants to look at simplifying corporation tax, further digitalisation of the tax system (including e-invoicing), and a promise to ‘modernise’ the rules around how company distributions to individual shareholders are taxed.

Frank Haskew, ICAEW Tax Director, said: “The proposed new founders’ relief is important, and we hope should help to encourage businesses to go for growth. However, overall, these measures are unlikely to make much difference to the total tax take, and underline the ‘steady-as-she-goes’ position adopted by the Chancellor.”

Devolution is a priority

Much of the budget was given over to measures to increase devolution across the UK – a key interest of the Prime Minister.

From 2028, an income tax assignment for all mayors will be introduced, and mayors will retain a 20% share of local business rates from next year, and 100% of business rates going to local and regional governments by the end of the decade.

Business rates retention zones are planned for:

• Greater Manchester,
• East Midlands,
• Hull and East Yorkshire,
• Liverpool City Region,
• Tees Valley,
• West of England,
• North East,
• York and North Yorkshire, and
• Greater London.

This is the first wave of a wider rollout of these zones.

Mostly good news

Reacting to the budget announcements Vallance said: “Amid the geopolitical uncertainty hitting the economy, today’s measures will help households and businesses navigate their finances.

“In particular, the budget gives welcome room for entrepreneurs to start and scale businesses, and to give those with side hustles extra space to keep what they’ve earned.

“Before the budget we called for no additional taxes on taking on staff and some relief on business rates, so companies will be pleased on that front.”