UK finance minister John Healey delivered his first budget on Wednesday, and it included a move to double a tax surcharge on banks’s profits above a set threshold to 6% for 15 months.

This was less than some banks lenders had feared.

Other moves included:

• Online marketplaces like Amazon, eBay and Temu will be responsible for collecting value-added tax owed by retailers selling on their platforms from October 2027. This will help fund business rate cuts for physical stores.
• Twenty million households will receive a £100 payment to deal with rising energy bills. A temporary cut to value-added tax on electricity bills will be extended until July. Standing charges on domestic gas bills, which currently add around £108 a year to bills, will be scrapped as soon as next year. Healey will maintain a freeze on fuel duty rates, extending a temporary cut made in 2022 until at least July.
• The minimum wage rates for both workers aged 18-20 and workers over 21 will increase by 3.9%.
• England’s regional mayors will be able to keep 20% of business tax rates from next year and a share of income tax rates from 2028.
• The tax on the net takings from some slot machines will increase to 25% from 20%.
• Healey reversed plans to slash the amount that people can invest in tax-free cash savings, keeping it at £20,000 for all investors instead of a cut planned by his predecessor to £12,000 for under-65s.
• Lower-income first-time buyers will be able to draw on a loan scheme funded by £4.7 billion of government-backed lending from next year. Healey will spend an additional £1.5 billion to speed up the building of affordable homes. He will also remove biodiversity requirements for small housing developments on previously developed land.
• UK’s national business lender and infrastructure bank will receive £15.4 billion and £5 billion of extra funding respectively over roughly half a decade.

REACTION:

“These banks are favourites among retail investors as a source of income, given a history of paying generous dividends. They feature in the top 20 most-held stocks by AJ Bell DIY investors in an ISA, and in the top 30 for self-invested personal pensions (SIPPs).

“NatWest is the ninth highest yielding stock in the FTSE 100 index, with a 6% dividend yield at the time of writing. Meanwhile, Lloyds yields 4.6%, with both offering an income stream greater than the Bank of England’s current official interest rate of 3.75% …

“Banks currently pay a 3% corporation tax surcharge on profits above £100 million generated in the UK. John Healey said that rate would double to 6% from January 2027 for 15 months, with the government expecting to raise around £1.5 billion.

“The banking sector won’t like it, but it is still lower than the 8% level seen up until 2023 before the system was reformed to help soften the blow of the corporation tax rate moving from 19% to 25%, partially to keep London’s banking centre competitive versus overseas peers. There had been fears that the surcharge would revert to 8%, hence why news of it going to 6% triggered a rise in banking shares. But that may only be a temporary bounce.

“While the newly-announced change doesn’t alter the point at which the surcharge kicks in – it was previously £25 million of profits until 2023 – it does leave banks having to give more of their earnings to the taxman.

“Any impact would be less pronounced for the likes of Barclays and HSBC given they generate a smaller share of their earnings in the UK than Lloyds and NatWest …

 “Retail investors have a long association with banking shares, with many people holding them through the dark years for the sector post-global financial crisis when dividends were scarce, in hope of a return to the good old days of high yields. Pre-credit crunch, it was possible to find 8% yields on some of the big-name banking stocks on the UK market.

“Their patience was eventually rewarded as dividends resumed and share prices strengthened.

“For many people, banking shares become a cornerstone of their portfolio in the belief that the UK’s biggest lenders are one of the market’s most reliable sources of income. Lloyds and NatWest will be fully aware of this situation and investors will seek reassurance that tax changes won’t crimp their dividends too much, or potentially not at all.

“When the banking surcharge tax first came into effect in 2016, the sector was still reeling from the global financial crisis and dividends were off the menu for many of the players while they went through restructuring and rebuilt their finances. Therefore, it is impossible to draw any comparisons with the last time the sector was hit by an 8% surcharge on profits.”

Sangita Shah, Interim CEO & Chair of the Quoted Companies Alliance: “Growing companies on UK public markets depend on deep, continuous liquidity to scale, invest, and create jobs. We welcome the Chancellor’s ambition to support British enterprise, including the introduction of Founders Relief to help high-growth founders reinvest, and the capital boost for the British Business Bank.

“However, growth companies across AIM, Aquis, and the Main Market face a sustained and chronic liquidity crunch that intent alone cannot solve. These businesses require the same level of support. To keep Britain’s most ambitious scale-ups listed in London, we need clear and decisive fiscal policy that continually lowers the cost of capital and rewards investors who back domestic public markets.

“We look forward to working with the government to turn today’s growth ambitions into vibrant market liquidity and supporting Britain’s small and mid-cap growth ecosystem …

“We welcome the incremental £20.4 billion commitment to the National Wealth Fund and British Business Bank, including the pledge of £1.4 billion in new BBB equity investment. We look forward to seeing this capital injected into quoted businesses and, as part of our Banking on Britain campaign, working with the government and the BBB to ensure investment is channelled directly into sub-£100 million market cap companies …

“We note the preservation of existing ISA limits; however, relying on cash defaults continues to deprive public growth markets of vital investment. We would still urge the government to consider British businesses through a British ISA and to that end, we welcome the government’s commitment to explore new incentives for first-time Stocks & Shares ISA investors. We also encourage the Treasury to design these mechanisms in a way that makes investment in British businesses an easy and visible choice.”

Scottish Chambers of Commerce CEO Charandeep Singh: “This Budget will not provide the reassurance our members were seeking at a time when employers across Scotland are crying out for action to alleviate the high cost of doing business.

“Employer National Insurance contributions remain at 15%, Scotch whisky distillers face another duty increase, there is no early end to the Energy Profits Levy, and the Acorn Carbon Capture and Storage project in the north-east has been left with no confirmed funding commitment, casting huge doubt over a project which could create 15,000 jobs.

“On these major pressures, and more, this Budget is disappointing.

“However, Scottish Chambers of Commerce does welcome measures to reduce electricity costs for manufacturers, alongside expanded access to UK Export Finance, a key request in our Budget submission to the Chancellor.

“New investment in Edinburgh’s technology sector and Glasgow’s SEC, alongside support for defence skills colleges, is also positive.

“Scotland’s economy has enormous potential, but our members need the right conditions to make the most of it. We will continue to make the case to the UK Government for action to reduce the high costs that are stifling investment and economic growth.

“Attention will now turn to the Scottish Government budget, where it is more vital than ever that we see urgent action on the major devolved issues stifling Scotland’s businesses, such as non-domestic rates.”

Lizzy Galbraith, Senior Political Economist, Aberdeen Investments: “Chancellor John Healey delivered a cautious “breathing space” budget with few fiscally significant measures. Higher borrowing costs from the global energy shock had cut fiscal headroom from £23.6bn at the spring statement to £12.5bn. Healey moved forward with a smaller buffer of £14.5bn rather than rebuilding the margin.

“The growth picture is mixed. The OBR raised its 2026 growth forecast only slightly, from 1.1% to 1.2%, against our own forecast of 1.5%. It also cut its 2027 forecast sharply, from 1.6% to 1.1%.

“Markets appear relieved. The DMO’s £251bn gilt remit for 2026–27 was slightly above consensus, but gilt yields edged lower because the Chancellor largely followed the “do no harm” approach markets wanted.

“Net tax rises were modest at £7.5bn by 2031–32, and nearly half comes from closing the tax gap. Even so, the tax burden is still forecast to reach a record 38.6%. Near-term support centres on a £100 energy payment to around 80% of households in England. At £2.6bn, it is the budget’s single most expensive measure.

“Notably Healey announced the government would prioritise “strategically important” data centres for grid connections. A new data centre covenant will grant additional government support to developers who meet a series of social and environmental standards, prioritising grid connections and permitting on site energy generation until a grid connection is secured.

“To support these measures, the government intends to reserve grid connections and reallocate capacity towards data centres. The success of this initiative will be dependent on whether the government can successfully utilise planning reforms to reduce friction in lead times, but if achieved the policy could serve to help support UK data centre development.

“The announcement sits alongside a wider push on investment: higher first-year capital allowances, a £20.4bn recapitalisation of the National Wealth Fund and a £5bn recapitalisation of the British Business Bank.

“The budget removes a near-term downside risk for gilts but defers the hard choices to the 2027 Spending Review. These include meeting the 3% of GDP spending commitment, which requires an extra £17.3bn in 2029–30, and the welfare review responses. That raises the prospect of an early election if current polling trends continue over winter.”

Patrick Thomson, head of research analysis at Standard Life Centre for the Future of Retirement:
“Confirmation in the budget documents that the State Pension will increase by 3.9% next April will be welcome news for millions of pensioners, but it also means the full new State Pension will rise to £13,036.40, overtaking the frozen £12,570 Personal Allowance.

“However, the government have announced a new Pensions Tax Allowance to address this so those on the low-income pensioners aren’t pulled into paying tax simply because their payments has increased.

“Those with total income between £12,570 and £13,037 will receive the full Pensions Tax Allowance, worth up to £94 in the first year, while it will then taper away at £1 for every £3 of additional income, meaning some support available up to an income of £13,319.

“This avoids a cliff edge, and the automatic application should make the process easier for people in this income bracket. The policy has been estimated to cost £45m in the first year which is small scale in the scheme of government finances but will be tangible benefit for those affected.

“However, with the State Pension continuing to rise against a frozen Personal Allowance, even relatively small differences in retirement income could lead to different tax outcomes, adding another layer of complexity to the system.”

David Ovens, Joint Managing Director at investment firm Archangels: “This is a nuanced Budget for entrepreneurs. Halving Business Asset Disposal Relief to £500,000 is disappointing, but the new founder allowance, offering a 10% CGT rate on gains up to £10m, is a positive step that rewards the people who take the biggest risks. More funding for the British Business Bank and new support for young and female founders also help widen the pipeline of ambitious companies.

“After more than 30 years backing Scottish tech and life sciences businesses, we know that founders need patient support over multiple rounds in order to succeed. Today’s measures are, on balance, positive and the real test will be whether government builds on them to give founders and investors across the UK the long-term confidence to start, scale and stay.”