UK Budget: Bank Levy Doubled to Fund Winter Relief

Chancellor John Healey delivered his first budget on Tuesday by raising taxes on financial institutions and property owners to fund a direct cash payment to millions of households. The measure aims to provide immediate relief as energy costs surge, a move Healey framed as necessary to give families breathing space during the coldest months.

The package includes a £100 payment sent to all English households in council tax bands A through D. The total cost of this distribution is £2.6 billion. This figure includes funds allocated to the Scottish and Welsh governments, which Healey said he hopes will be used to implement similar schemes in their respective regions.

To finance the expenditure, Healey doubled the additional levy banks pay on their profits to 6%. The increase is temporary and will last for 15 months. He also raised tax rates by 2p on income derived from property and savings. These changes are intended to cover the cost of the household support measures.

The Office for Budget Responsibility, the government's independent forecaster, warned that households face a grim outlook. The agency slashed its economic forecast for 2027 and predicted virtually no growth in disposable income. Inflation is expected to rise to almost 4%. By 2030-31, real disposable household incomes are projected to be only 2% higher than pre-pandemic levels.

Critics argued the tax measures punish savers and landlords. Ruth Curtice, chief executive of the Resolution Foundation, stated that the support was badly targeted and left families facing a tough winter. Laura Suter, director of personal finance at AJ Bell, noted that savers would face another hefty tax rise on interest. She added that landlords might pass costs to tenants or sell properties to avoid higher taxes.

Hannah Peaker, deputy chief executive of the New Economics Foundation, said the chancellor showed the right instincts but not the right scale. She argued that while the £100 support offers welcome relief, Healey could have been braver in addressing the crisis. The OBR warned that the higher tax on rental income risks leading to a steady rise in rents by deterring landlords from the market.

Healey also cancelled planned fuel tax rises and extended a VAT cut on electricity prices until next summer. He raised the rates relief threshold from £12,000 to £18,000 for companies in retail, hospitality, and leisure. This change will be funded by higher taxes on gambling and vape shops.

The budget maintained Labour's fiscal rules, though with diminished headroom. The OBR projected a buffer of £15 billion by 2029-30, down from the £24 billion built up in the spring. Healey promised to rebuild the buffer to £22 billion by the end of the five-year forecast period. He stated that the buffer is for use when needed and should be rebuilt when possible.

Energy provider EDF predicts the Ofgem price cap will rise by £466 in January. David Miles of the OBR described the picture for household finances as pretty grim. Healey said higher inflation and interest rates had increased the government's interest bill by £14 billion this year. He committed to balancing day-to-day spending with tax revenues by the target date.

Conservative leader Kemi Badenoch criticized the government for overspending and overborrowing. She argued that Healey delayed decisions on defense spending and welfare cuts. Healey said he would tackle welfare after reports from Alan Milburn and Sir Stephen Timms, expected next month. Helen Miller of the Institute for Fiscal Studies warned that tight spending plans could store up trouble for next year's spending review.