Budget 2026: energy help, a savings tax rise and a new authority for Kent and Medway as Healey meets his rules with less room

Chancellor John Healey delivered Budget 2026 on Wednesday 28 October 2026, his first Budget and the first under Prime Minister Andy Burnham. The Budget document describes itself as giving “breathing space for families and businesses, particularly with energy costs” and says it “rejects broad-based tax rises”. There are no increases to the headline rates of income tax, National Insurance or VAT.

The central trade-off in the Budget is this: the Office for Budget Responsibility (OBR) forecasts the government will pay an average of £14 billion a year in extra debt interest compared with its March forecast, a rise the Budget attributes to higher borrowing costs since the start of the conflict in the Middle East. Rather than raise broad-based taxes to cover that cost, the government has chosen to absorb it by using the headroom (the gap between forecast tax receipts and day-to-day spending) it had built up. The result is that the margin against the government’s own stability rule has narrowed from £24 billion in the March forecast to £15 billion.

For Kent and Medway, the Budget lists a new Strategic Authority for the area, with the possibility of a mayoral model depending on the outcome of local government reorganisation.

The public finances

The government sets itself two fiscal rules. The stability rule requires day-to-day spending to be covered by tax receipts. The investment rule requires net financial debt (the government’s financial liabilities minus its financial assets) to be falling as a share of the economy. According to the OBR forecast published with the Budget, both rules are met.

The stability rule is met by a margin of £15 billion in 2029-30, rising to £22 billion in 2030-31. In the OBR’s March forecast the margin in 2029-30 was £24 billion. The Budget says higher debt interest costs “more than account for” the reduction since the spring. The investment rule is met by £24 billion in 2029-30.

Borrowing is forecast at £133.2 billion in 2026-27, up from £115.5 billion in the March forecast. As a share of GDP, borrowing is forecast to fall from 4.2% in 2026-27 to 1.8% in 2031-32. Public sector net debt is forecast at 95.5% of GDP in 2026-27, peaking at 97.3% in 2028-29 before falling to 95.6% in 2031-32.

The economy

The OBR has upgraded its forecast for economic growth in 2026 to 1.2%, from 1.1% in March. It forecasts growth of 1.0% in 2027, 1.6% in 2028 and 1.8% in 2029.

CPI inflation (the standard measure of consumer price rises) stood at 3.5% in September. The OBR expects it to peak at 3.8% in the first quarter of 2027 and return to the Bank of England’s 2% target by the third quarter of 2028.

On employment, the OBR expects unemployment to rise to 5.1% in the second quarter of 2027 before falling to 4.1% by the end of the forecast period. It forecasts total employment rising from 34.4 million in 2026 to 35.4 million in 2031.

Energy and the cost of living

The largest single household measure is a £2.6 billion Household Energy Payment. From January 2027, households in council tax bands A to D in England will receive a £100 direct payment, delivered through the council tax system. The Budget says up to 20 million households are eligible. To help fund the payment, the Bank Corporation Tax Surcharge (an additional rate of corporation tax paid by banks, on top of the standard rate) rises temporarily from 3% to 6% from 1 January 2027 until 31 March 2028.

The reduced rate of VAT on electricity, which lowers the tax charged on domestic electricity bills, is extended to July 2027. The Budget says this is expected to take around £50 off the annual Ofgem price cap in April 2027.

Gas standing charges, the fixed daily fee charged to gas customers regardless of how much gas they use, will be abolished. The average standing charge is about £108 a year for a typical billpayer. Ofgem is aiming for delivery by the end of 2027 or as soon as possible after.

Fuel duty, the tax on petrol and diesel, remains at 52.95p a litre. The existing 5p cut and the freeze are extended to 1 July 2027. The HGV road tax holiday is also kept to 1 July 2027. Bus fares remain capped at £2, a measure already announced before the Budget.

Pay, savings and pensions

The National Living Wage (the legal minimum hourly rate for workers aged 21 and over) rises by 3.9% to £13.21 an hour from 1 April 2027. The Budget says this is worth £910 a year to a full-time worker. The rate for 18 to 20-year-olds rises to £11.27 and for 16 to 17-year-olds and apprentices to £8.31.

Tax on savings income and on property income, such as rent, rises by a further 2 percentage points from 6 April 2027. This is on top of the 2 percentage point rise announced at Budget 2025. The new rates are 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers. This change affects people whose income comes from savings interest or from renting out property. The Budget says 84% of income tax payers will be unaffected.

The cash ISA allowance (the amount people can save tax-free in a cash individual savings account each year) stays at £20,000. A planned cut to that limit has been reversed.

The State Pension triple lock, which currently guarantees the State Pension rises each year by the highest of earnings growth, inflation or 2.5%, will be adjusted from the next Parliament so that the State Pension tracks earnings over time. The Budget estimates this reduces State Pension spending by £15 billion a year by the late 2030s. The change is tied to a planned National Care Service in England that would offer personal care free at the point of use. Baroness Casey’s commission on adult social care will report in 2027.

From April 2027, a new Pension Tax Allowance means pensioners with incomes at or below the full new State Pension will not be brought into paying income tax as a result of State Pension rises in this Parliament.

Homes

The Budget introduces Your First Home, a £4.7 billion equity-loan scheme for first-time buyers in England from April 2027. The government lends buyers 20% of the purchase price, meaning buyers need a deposit of as little as 2.5% (up to a maximum of 15%). The loan is interest-free for five years. Household income caps are £110,000 outside London and £140,000 in London. Price caps are set by local authority median house prices; in London the caps are £650,000 for inner London and £500,000 for outer London. Developers contribute to the scheme when signing up. The Budget says around 70,000 first-time buyers could benefit.

The price caps for Kent local authority areas were not published in the Budget document. For context, the average first-time buyer in Kent paid £283,559 in August 2026, according to HM Land Registry data.

A further £1.5 billion has been allocated for around 10,000 social and affordable homes in England.

Business

Business rates are the property tax paid by commercial occupiers. From 1 April 2027, the threshold for 100% Small Business Rate Relief for retail, hospitality and leisure properties in England rises from £12,000 to £18,000 rateable value. The threshold for tapered relief (a partial reduction) rises from £15,000 to £21,000. The Budget says around 70,000 more high street businesses will pay no business rates as a result.

Pubs, social clubs and most live music venues in England will receive an extra 20% business rates relief from 1 April 2027. Other retail, hospitality and leisure properties have their rates frozen for two years. To help fund these measures, online marketplaces will be required to collect VAT for sellers with significant online sales.

Business Asset Disposal Relief (a reduced capital gains tax rate available when selling a business) has its lifetime limit cut from £1 million to £500,000 from 6 April 2027. A new Founders’ Relief offers a 10% capital gains tax rate on up to £10 million of lifetime gains from 6 April 2027.

Machine Games Duty, the tax on gaming machines, rises from 20% to 25% on machines with stakes over £1 from April 2027.

Kent and Medway

The Budget lists among 10 new devolution agreements the government says it is in the final stages of agreeing: “A Strategic Authority for Kent and Medway which will be Mayoral if the area’s Local Government Reorganisation outcome is compatible with this and Foundation if not.” A Strategic Authority is a body covering the area that can take on powers and funding from central government. The next step is local consultations with key stakeholders.

Whether the authority takes a mayoral form depends on the outcome of local government reorganisation in Kent. That process is currently paused, and district council elections are scheduled for 6 May 2027 on existing boundaries. Kent has no mayor at present.

On fiscal devolution more broadly, the government’s roadmap sets out income tax assignment for all mayors from 2028, mayors keeping 20% of locally retained business rates from April 2027, and local and regional government keeping 100% of business rates by the end of the decade.

For Kent County Council, the Budget sets the overall spending envelope but council funding for 2027-28 is normally confirmed in the local government finance settlement in December. KCC’s first-quarter monitoring report, considered by the Scrutiny Committee on 21 October 2026, forecast a £21.4 million overspend in 2026-27 and a £109 million high-needs overspend in the same year.

Across Kent, 33,605 people were claiming unemployment-related benefits in September 2026, a rate of 3.4%. In Medway the figure was 7,775, a rate of 4.2%, according to Nomis data.

A shorter, reader-friendly version of this report is available on KLN, and a follow-up on what the Budget means for Kent households is coming.

What Part 1 asked, and the answers

• Would income tax thresholds change? No change was announced. (Part 1)
• What would happen to fuel duty after December? The 5p cut and freeze are extended to 1 July 2027, keeping the rate at 52.95p a litre.
• Would Your First Home price caps for Kent be published? Caps are set by local authority median prices but the Kent-specific figures were not published in the Budget document.
• Would the fiscal rules still be met? Both rules are met, though the margin against the stability rule has narrowed from £24 billion to £15 billion in 2029-30.

Key figures

• £133.2 billion forecast borrowing in 2026-27 (OBR, via Budget 2026 document)
• £14 billion a year extra debt interest compared with the March forecast, on average (OBR, via Budget 2026 document)
• £15 billion margin against the stability rule in 2029-30, down from £24 billion in March (OBR, via Budget 2026 document)
• 97.3% of GDP peak public sector net debt, forecast in 2028-29 (OBR, via Budget 2026 document)
• 3.8% peak CPI inflation, forecast in the first quarter of 2027 (OBR, via Budget 2026 document)
• £13.21 an hour National Living Wage from 1 April 2027, a 3.9% rise (Budget 2026)
• £100 Household Energy Payment per eligible household in council tax bands A to D in England from January 2027, up to 20 million households (Budget 2026)
• £4.7 billion allocated to the Your First Home equity-loan scheme for around 70,000 first-time buyers in England (Budget 2026)
• £283,559 average first-time buyer price in Kent, August 2026 (HM Land Registry)
• 33,605 people in Kent claiming unemployment-related benefits in September 2026, a rate of 3.4% (Nomis)

Sources

• HM Treasury — Budget 2026 (HTML), 28 October 2026
• Office for Budget Responsibility — Economic and fiscal outlook, October 2026
• HM Treasury — Fiscal Devolution Roadmap
• GOV.UK — Budget 2026 in full
• ONS claimant count via Nomis — Kent and Medway, September 2026
• HM Land Registry — UK House Price Index, Kent, August 2026
• Kent County Council — Scrutiny Committee papers, 21 October 2026