Your pay, energy bills and savings: How the Budget affects you
Changes announced by Chancellor John Healey in his first Budget will affect your finances directly. Here's how.
Your pay, energy bills and savings: How the Budget affects you
Families under cost-of-living pressure are being given some support, or “breathing space” as Chancellor John Healey is describing it.
That help comes as the cost of living continues to rise, with energy bills in particular expected to climb by almost £300 in January.
Here is how the Budget’s main announcements affect you and your money.
The chancellor has effectively brought back cost-of-living payments by announcing a £100 automatic payment paid straight into bank accounts.
He said 20 million homes in council tax bands A to D in England will get a £100 “Household Energy Payment”, funded by extra tax on banks.
The administrations in Scotland, Wales and Northern Ireland will receive equivalent funding, and they will decide whether to introduce the same payment.
The measure is intended to help with soaring energy bills. Tariffs tied to regulator Ofgem’s price cap are expected to jump by hundreds of pounds a year, to an annual bill of £2,000 or more in January.
The VAT cut on electricity bills, introduced in October, will also be extended until July. It had been due to end in April.
Gas standing charges will be abolished in England, Scotland and Wales in 2027 “or as soon as possible after”, the chancellor said.
These fixed daily fees will be moved into the price of each unit of energy.
The Treasury says 60% of households will benefit by an average of £45 a year, with lower users gaining the most - but not until after the projected sharp rise in bills in January.
Higher users - in the largest homes but also large, low-income families - will pay more than they do now.
The government wants to extend reforms to electricity standing charges later.
The 5p “temporary” cut in fuel duty on petrol and diesel, introduced by Rishi Sunak in 2022, will be extended until July. It had been due to be phased out from January.
That means drivers will still pay the levy at 52p per litre.
Motor fuel prices have risen sharply because of the continuing impact of the Iran war on drivers, with diesel recently reaching new records after moving above £2 per litre.
The cost of filling a typical family car with diesel has risen by about £30 since late February. A tank of petrol costs about £23 more.
The chancellor has abandoned his predecessor’s plan to cut the annual amount people can save tax-free in cash in Individual Savings Accounts (Isas).
Rachel Reeves had wanted the policy to push people towards investing in stocks and shares.
That would have meant that from April 2027, if you were under 65, you could only save £12,000 a year in cash in an Isa, instead of £20,000.
But that plan has now been dropped.
Instead, the government plans to introduce a new “Starter Isa” for first-time investors.
Minimum wage rates will rise by 3.9% in April.
However, this means there is no progress this time on Labour’s manifesto pledge to narrow the gap in minimum wages between older and younger workers.
For all workers, the continuing freeze on the income bands, or thresholds, at which income tax is paid was not mentioned in the Budget.
But it means any pay rise could push you into a higher tax bracket, or result in a larger share of your income being taxed than would otherwise be expected. Scotland has its own income tax bands.
The triple lock policy means the state pension will rise in line with average wage growth, at 3.9%.
That means: the flat-rate state pension for those who reached state pension age after April 2016 will be £250.70 a week, or £13,036.40 a year, up £488 on now; the old basic state pension for those who reached state pension age before April 2016 will be £192.10 a week, or £9,989.20 a year, up £374.40 on now.
The government had already promised not to tax people whose only income comes from the state pension.
The chancellor said that would remain the case until at least 2030, because there will be a new Pension Tax Allowance, meaning pensioners with income up to the value of the full new state pension will not pay income tax.
The First Time Buyer Isa has been in development with the government for some time.
Healey has confirmed it is meant to replace the much-criticised Lifetime Isa.
Separately, he confirmed the Your First Home equity scheme, which will allow first-time buyers in England to purchase a new-build home with a 2.5% deposit. It would give them a loan worth 20% of the property’s value to help with the purchase.
Some measures affecting your finances have already been announced by the government.
They include:
- Tariffs removed from 100 food items such as baked beans and garlic, which the government says could save households up to £21 a year - or 40p a week - when combined with existing tariff suspensions introduced in June
- Allowing carers to earn more than an existing earnings limit without losing their entire allowance, replacing it with a taper mechanism instead. However, this will not come in until 2030
- Giving two weeks of paternity pay to self-employed fathers, who have previously missed out on payments of up to £194 a week for the period
- Making permanent a 55p per mile tax-free mileage rate for those driving up to 10,000 miles for work, with the rate rising from 25p per mile to 35p above that
- The prime minister’s plan to reinstate the £2 cap on bus fares in England from January to remain in effect throughout 2027. Some cities already have caps, and funding is being given to the devolved nations