Following the 2026 Budget, Ramona Creighton, our Political Consultant for Economy & Financial Services, answers four questions on the key takeaways, the gaps, and whether the Government’s priorities have shifted.
What are the key takeaways for your sector?
Ramona Creighton: Healey’s Budget prioritised building fiscal credibility through spending restraint, and targeted cost-of-living interventions.
The Chancellor accepted a smaller fiscal headroom of £15bn, a £7bn reduction from the OBR’s March forecast. Gilt markets and investors had signalled they would accept a diminished buffer, allowing the Chancellor to demonstrate fiscal discipline without breaking manifesto promises.
Despite this, the Chancellor still needed to raise revenue to fund emerging political priorities.
The most significant revenue-raising measure announced was the anticipated increase in the bank surcharge. Speculation suggested this could reverse Jeremy Hunt’s 2023 decrease from eight to three percent. Instead, Healey chose to raise it by three percent on a time limited basis, beginning in January and lasting 15 months. He emphasised this as a non-permanent measure, with the revenue to be used to support families struggling with energy bills.
Prior to the Budget, the Treasury was clear that it hoped to back business. This was confirmed by plans announced on Friday that reduced regulatory burdens, offering an estimated £800m a year in savings. Healey maintained this emphasis during his speech, promising increases to the threshold for small business rate relief.
Another of Burnham’s key economic ambitions was articulated in the Government’s fiscal devolution roadmap, which outlines a new funding system that would reward local leaders for their economic performance and move decisions outside of Westminster.
These economic priorities – adherence to the fiscal rules, the promotion of British businesses, and further devolution of key economic decisions, are again evident in £20.4bn of additional funding being granted to the National Wealth Fund and British Business Bank.
What has the Government not sufficiently addressed in the Budget for your sector?
Ramona Creighton: While the temporary increase in the surcharge that banks pay on corporation tax is predicted to raise revenue, it could also impact the ability of banks to attract investment or lend to businesses and households.
UK Finance has suggested uplifts in these rates could negatively impact international competitiveness. These measures may therefore restrict the ability of British businesses to access the finance needed to scale and adapt.
Policies to reduce the administration and regulatory burdens faced by businesses were also announced prior to the Budget, through the simplification of corporate reporting and regulatory compliance guidance. However, the policies outlined by Healey do not adequately address the cost and availability of business finance. In fact, this surcharge could make borrowing more costly.
Perhaps as expected, this year’s Budget was less substantial than previous years’ due to an economic environment that calls for restrained borrowing and spending.
Furthermore, the Prime Minister’s ten-year plan is expected to provide a more detailed picture of a long-term economic growth strategy later this year.
This Budget addresses short-term spending concerns, including measures to support households struggling with the cost of energy, meaning that further decisions on long-term public investment and the Government’s broader growth strategy could well be included in the ten-year plan, or deferred until the 2027 Spending Review.
Have the Government’s priorities changed in your sector? Why?
Ramona Creighton: Perhaps the most noteworthy change is within the financial services sector.
Despite financial services being identified as one of the 2025 Industrial Strategy’s eight priority sectors, and a space in which competitiveness could be boosted, banks now face a temporarily increased surcharge on corporation tax.
However, the temporary nature of this measure reveals a tension between a short-term revenue raising measure and the long-term competitiveness of the financial services sector.
Beyond cost-of-living support to working-age households, funded through the bank surcharge, the increase in the tax-free allowance for low-income pensioners is consistent with the Government’s approach to provide targeted support, or the much referenced “breathing space” to the most vulnerable. This policy also seeks to reassure pensioners following announcements concerning changes to the triple lock.
Healey’s Budget reflects a government acknowledgment of the need for restrained spending to avoid making borrowing more expensive. Nevertheless, the Budget proves relatively consistent with the Government’s pre-established economic agenda.
Adherence to the fiscal rules was a pre-determined feature of this Budget due to commitments from both Healey and Burnham. Equally, with devolution sitting as one of the central aims of the Burnham Government, the promised fiscal devolution roadmap is in keeping with a shift to more regional decision making.
Although the Budget addresses fiscal devolution, the cost of business and short-term remedies to the cost of living, it prioritises fiscal discipline over increased spending to fund new policy priorities.
Any additional reflections?
Although discussions of fiscal headroom have taken precedent prior to the Budget, it alone cannot determine the sustainability of the Government’s spending plans.
This Budget will also be judged on the sustainability of spending commitments, impact on gilt markets, and subsequent economic growth. The OBR has predicted GDP growth of one percent in 2027, a downgrade of 0.5 percent from its March forecast. Although real GDP growth is predicted to pick up towards the end of the forecast period, this is only anticipated to reach 1.75 percent.
Longer term spending ambitions will likely be consolidated in the ten-year plan and the 2027 Spending Review. A more limited Budget therefore increases the significance of upcoming policy announcements and fiscal events.
Despite heightened security protocols, many of the announcements made today were in line with speculation. The Budget prioritised reassurance and stability, while including some provisions for longer term growth. These included increased funding to Public Finance Institutions, and policies targeting the regulatory burden of British business.
The resounding theme of this Budget, and a phrase much quoted by Healey in his speech, is one of “breathing space.” The policies announced aim to deliver targeted relief on the cost of living and cost of business, and reflect the tense economic climate and energy market volatility.