UK Budget 2026 Summary: £100 Energy Payments, Bank Tax Rise and Pension Tax Allowance Explained

Chancellor John Healey delivered his first Budget on Wednesday, 28 October 2026, promising a package to help households through what he called global economic storms. The headline measure is a £100 payment for 20 million households, funded in part by a higher tax on banks, alongside a new pension tax allowance and a rise in the minimum wage.

Healey, serving under Prime Minister Andy Burnham, framed the Budget as one for working people and British businesses at a time of rising inflation and borrowing costs. He said the Government had chosen to use fiscal headroom to absorb the impact of the Iran war on the economy and to protect family budgets. This article summarises the main announcements, who gains, and what is still to be confirmed.

Readers who followed the run-up can compare this with what to expect from the Budget before Healey stood up in the Commons.

UK Budget 2026 summary at a glance

Energy bills: the £100 payment and lower standing charges

The £100 Household Energy Payment will go directly into the bank accounts of households in council tax bands A to D, to help with bills through the coldest months and into spring. The scheme costs £2.6 billion, with funding also allocated to the devolved governments of Scotland, Wales and Northern Ireland. Healey also extended the VAT cut on electricity bills to July, a move the Government says takes £50 off the annual price cap.

Standing charges will be scrapped from household gas bills, with plans for similar reform for electricity bills. The Chancellor also announced a new cost-control framework to drive down energy bills and removed a levy to fund hydrogen projects from bills, shifting it to general taxation. Together, the energy measures are the centrepiece of the Budget’s cost-of-living help, aimed at bills that are forecast to rise sharply in January.

How the package is paid for: banks pay more, for 15 months

The bank surcharge rises to 6% from 3% on profits above a set threshold, for 15 months starting in January. The rise is smaller than the 8% some in the industry had feared, and shares in HSBC, Barclays, Lloyds and NatWest rallied on Wednesday, with Barclays, NatWest and Lloyds up around 4%. Healey also raised the rates of tax on income from property and savings by a further two percentage points from April 2027.

The Government says the bank levy helps fund help for less well-off households. Industry lobby group UK Finance has argued Britain already taxes banks more heavily than other major financial centres, while unions had lobbied for an even bigger rise. The tension between those two arguments is likely to run through the debate on the Budget in the coming weeks.

Pensioners: a new pension tax allowance and a higher state pension

The full new state pension will rise by 3.9% to £13,036 a year from next April. That takes it above the £12,570 personal allowance for the first time, which would otherwise have meant millions of pensioners paying tax on their pension for the first time. Healey confirmed a new pension tax allowance so that anyone whose only income is the state pension will not pay income tax.

The detail matters: it is understood that pensioners with even £1 of extra income will not qualify for the higher allowance, a point critics have already called a two-tier system. The Government has also set out plans to change how the state pension rises after 2030, with increases linked to inflation or 2.5%, and a backstop ensuring it does not fall below 30% of the average wage. Pensioners should check their own position once the detailed rules are published, since the allowance as announced applies only to sole state-pension income.

Workers, drivers and families: wages, fuel duty and parental pay

The national living wage for workers aged 21 and over rises by almost 4% to £13.20 an hour, from £12.71. The minimum wage for workers aged 18 to 21 rises to £11.27, from £10.85. The 5p-a-litre cut in fuel duty is extended to July, at a cost of almost £1.4 billion between this year and 2028, and workers who use a car or van for work will be able to claim 55p per mile tax-free for their first 10,000 business miles from April 2027.

Paid parental leave is extended to self-employed fathers and their partners, and unpaid carers will no longer lose their entire Carer’s Allowance if they earn more than £204 a week after tax. A taper will apply instead, so support falls gradually rather than stopping at once. Healey also kept in place his predecessor’s plan to freeze income tax thresholds until 2031, a freeze that pulls more workers into higher tax bands as wages rise.

Homes, high streets and the wider economy

For first-time buyers, Healey confirmed a new First Time Buyer ISA to replace the Lifetime ISA, and a Your First Home scheme from next spring, funded with £4.7 billion of government-backed lending. The scheme includes an equity loan for buyers in England purchasing a new-build home with a 2.5% deposit, supported by a loan worth 20% of the property’s value. The Prime Minister’s pledge to offer a bed to everyone who is homeless will also be extended as indefinite policy, costing more than £400 million over five years.

The threshold for business rates relief for retail, hospitality and leisure firms rises from £12,000 to £18,000, funded by higher taxes on gambling and vape shops. Duty on gambling machine takings rises from 20% to 25%. Tariffs on more than 100 supermarket products, including chocolate and gherkins, are suspended to help keep prices down. On defence, Healey is expected to delay until next year details of how Britain will meet NATO’s target of defence spending reaching 3.5% of GDP by 2035, even as Britain’s nuclear deterrent remains in the spotlight.

Healey described the Budget as delivered at a time of global uncertainties and pressures hitting people at home, in a budget for working people and British businesses. The Office for Budget Responsibility has downgraded its growth forecast for next year, a reminder of how little room the Chancellor had. Whether the £100 payment and the energy reforms are enough to ease the January bill shock will become clearer when the price cap is set.

UK Budget 2026: questions answered

Q: Who gets the £100 energy payment? A: Households in council tax bands A to D, around 20 million homes, will receive £100 paid directly into their bank accounts. The scheme costs £2.6 billion and is aimed at the coldest months through to spring.

Q: What is the new pension tax allowance? A: It is a new tax-free allowance for pensioners whose only income is the state pension, so they do not pay income tax even though the full new state pension of £13,036 exceeds the £12,570 personal allowance. Pensioners with additional income are understood not to qualify for the higher allowance.

Q: How long does the bank tax rise last? A: The bank surcharge rises from 3% to 6% for 15 months starting in January. It partly reverses a cut from 8% three years ago, and bank shares rose on Wednesday because the rise was smaller than feared.

Q: Does the fuel duty cut continue? A: Yes. The 5p-a-litre cut in fuel duty is extended to July, and the tax-free mileage rate for workers driving for work becomes permanent at 55p per mile for the first 10,000 miles from April 2027.

Q: What rises for workers? A: The national living wage rises to £13.20 an hour for workers aged 21 and over, and the 18-to-21 minimum wage rises to £11.27. Paid parental leave is extended to self-employed fathers and their partners, and a taper replaces the cliff edge in Carer’s Allowance.