UK Budget: Bank levy doubled to fund winter household support

Chancellor John Healey announced a doubling of the bank profits levy to 6 percent to fund a one-off cost-of-living payment for households. The measure, introduced in his first budget, aims to provide immediate relief to 20 million families in England as energy costs rise. The new tax on banks will remain in effect for 15 months.

Healey stated that the government intends to give 20 million households in council tax bands A through D a payment of 100 pounds. The total cost of this initiative is 2.6 billion pounds, which includes funding allocated for the Scottish and Welsh governments. Healey said he hopes those administrations will use the funds to implement similar schemes in their regions.

The chancellor blamed global economic storms for the current financial outlook, citing the war in Iran as a driver for higher oil and gas prices. He described the payout as a way to take pressure off residents during the coldest months. The goal, he said, is to help people reach spring with some breathing space.

The Office for Budget Responsibility, the government's independent forecaster, warned of a grim picture for living standards. It slashed its outlook for the economy in 2027 and reported virtually no growth in disposable income for households. The agency expects real disposable household incomes to be only 2 percent higher than pre-pandemic levels by 2030 or 2031.

Criticism emerged regarding the tax on property and savings income, which increased by 2 pence. The OBR noted this change could lead to a steady rise in rents by deterring landlords from the market and reducing supply. Laura Suter, director of personal finance at AJ Bell, said the higher tax on rental income could be passed on to tenants as landlords seek to mitigate costs.

Ruth Curtice, chief executive of the Resolution Foundation, argued the support was poorly targeted. She said the government missed the mark by not providing more generous support to the poorest consumers. Hannah Peaker, deputy chief executive of the New Economics Foundation, said the chancellor showed the right instincts but lacked scale in the face of the crisis.

Healey also cancelled planned fuel tax rises and extended the VAT cut on electricity prices to next summer. He raised the rates relief threshold for retail, hospitality, and leisure companies from 12,000 pounds to 18,000 pounds. This change is funded by higher taxes on gambling and vape shops.

The government's interest bill increased by 14 billion pounds this year due to higher inflation and interest rates. Healey promised to stick to Labour's fiscal rules, aiming to balance day-to-day spending with tax revenues. The OBR said the government would meet this target with a buffer of 15 billion pounds by 2029 or 2030, down from the 24 billion pounds built up in the spring.

Conservative leader Kemi Badenoch argued that Britain had overspent, overborrowed, and overtaxed. She criticized the delay in decisions on defense spending and welfare cuts. Healey said he would address welfare issues after receiving reports from Alan Milburn and Sir Stephen Timms next month.

Healey told reporters he could rule out an early general election for at least 12 months. He said he is focused on helping people rather than thinking about his party's prospects. Bond markets appeared unruffled by the higher-than-expected borrowing, and bank share prices were among the highest risers in the FTSE 100 index on Wednesday.