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Macro EconomyMedium•28 October 2026•
4 min read

UK Budget Gives 20 Million Households £100 and Temporarily Doubles Bank Tax

Key Facts

1The budget allocated £2.6 billion for energy support, including a £100 payment for up to 20 million households in England from January 2027.
2The banking surcharge rises from 3% to 6% for 15 months, from 1 January 2027 to 31 March 2028.
3The Office for Budget Responsibility forecast growth of 1.2% in 2026 and 1.0% in 2027.
4Fiscal headroom stood at £15 billion in October, compared with £23.6 billion in March.
5British 10-year government bond yields fell 2 basis points and 30-year yields 3.5 basis points on budget day.

In his 28 October budget, British Chancellor John Healey announced a direct £100 energy payment for up to 20 million households in England, as part of total support of £2.6 billion, according to a Treasury document. Payments will begin in January 2027 through the council tax system, with eligibility in England limited to households in bands A to D. The government said the temporary increase in the surcharge on banking companies would help fund support for households and businesses. The budget raises the surcharge from 3% to 6% for 15 months, starting on 1 January 2027 and ending on 31 March 2028. The rate returns to 3% on 1 April 2028, according to the document.

The energy package extends support by prolonging the cut in value-added tax on household electricity until July 2027. The Treasury expects the extension to lower Ofgem’s annual energy price cap by about £50 in April 2027. The budget also included scrapping standing charges on household gas bills in Great Britain, aiming to implement the move by the end of 2027 or as soon as possible afterwards. The measures come as Healey linked economic challenges to global trade tensions, the war in Ukraine and conflict in the Gulf. He said the economy was facing a blow from the conflict in the Gulf alongside trade tensions and the war in Ukraine.

The Office for Budget Responsibility estimated gross domestic product growth at 1.2% in 2026, up 0.1 percentage points from its March forecast, before slowing to 1.0% in 2027. It attributed next year’s slowdown to the pass-through of higher energy prices to consumers and businesses, and the impact of higher interest rates. In a parallel estimate of price pressures, it forecast inflation peaking at 3.8% in the first quarter of 2027, before returning to the 2% target in the third quarter of 2028. The budget document linked the impact of the conflict in the Middle East to higher energy prices and production and transport costs. The document said core inflation was 2.8% in September 2026, compared with 6.5% in September 2022, comparing the same stage after the two energy shocks.

Healey said the fiscal headroom available for additional spending or tax cuts stood at £15 billion in the October budget, compared with £23.6 billion in March, according to Reuters. The Office for Budget Responsibility estimated that the Middle East shock would add an average of £14 billion a year to government debt interest costs compared with its spring forecasts. The figures reflect limited fiscal room alongside funding allocated for energy support, while the government said the temporary increase in the banking surcharge would contribute to funding support for households and businesses. The budget thus combines a cash payment to households and an expected reduction in the energy price cap with a time-limited tax increase on banking companies. The banking surcharge increase is set to end on 31 March 2028, before the rate returns to 3% the following day.

The measures included increases in minimum wages from 1 April 2027, with the National Living Wage for people aged 21 and over rising 3.9% to £13.21 an hour. The Treasury expects about 2.3 million workers to benefit from the minimum-wage increase. In consumer spending data, retail sales volumes rose 0.7% in the third quarter compared with the second quarter, despite falling 0.4% in September month on month after a 0.7% increase in August. The Office for National Statistics attributed a decline in some online clothing sales to warmer-than-usual weather. The next retail sales data are due on 20 November 2026.

British government bond yields fell on budget day, according to Reuters; the 10-year yield dropped 2 basis points, while the 30-year yield fell 3.5 basis points. As for subsequent energy measures, the government expects the extension of the VAT cut to lower the annual energy price cap by about £50 in April 2027, with the cut continuing until July of the same year. It also aims to scrap standing charges on gas by the end of 2027 or as soon as possible afterwards. From October 2027, online marketplaces will be responsible for collecting VAT on sales by qualifying British businesses through their platforms. The Treasury said the change would not affect in-person sales through online marketplaces.