Chancellor John Healey today extended the cut to VAT on household electricity bills to July and announced a temporary rise in the Bank Surcharge to pay for energy support, in a first Budget that also raised the Small Business Rate Relief threshold for retail, hospitality and leisure firms from £12,000 to £18,000.
Energy bills and fuel
The VAT cut on domestic electricity, in force since 1 October, will now run through winter and spring to July, “taking £50 off the annual price cap”, the Chancellor said.
For industry, Healey said a new British Industrial Competitiveness Scheme would take 25 per cent off electricity bills for 10,000 firms from April, with backdated payments for energy costs this year. Manufacturers had urged Healey to cut energy and employment costs ahead of the statement.
From next year, standing charges will be removed from household gas bills through Ofgem, with similar reforms to follow for electricity. The charge usually costs the average household £108 a year, and the government estimates 60 per cent of households will save an average of £45 a year.
Some 20 million households in council tax bands A to D will receive a £100 Household Energy Payment, paid directly into bank accounts, under what Healey described as a £2.6bn scheme. The 5p cut to fuel duty will also be extended to July.
Banks will pay an extra 3 per cent on the Bank Surcharge, taking it to 6 per cent. Healey said the increase would be time limited, starting in January and ending 15 months later, “to pay for immediate support on energy bills”.
Business rates and tax
Healey said the higher Small Business Rate Relief threshold would mean 70,000 businesses no longer pay business rates. All other businesses will have their rates frozen in real terms “so that none face an above-inflation rise for two years”. This follows the government’s earlier plan to cut business rates for pubs, clubs and music venues by 20 per cent from April 2027.
Machine Games Duty will rise from 20 per cent to 25 per cent for higher-stakes machines, with pubs and seaside arcades protected. Adult gaming centres and vape shops will be carved out of business rate reliefs, and the Transitional Relief Supplement extended for two years.
The main rate first-year allowance will increase from 40 per cent to 50 per cent, while the main writing down allowance falls from 14 per cent to 12 per cent.
The threshold for Business Asset Disposal Relief in capital gains tax will be cut from £1m to £500,000, which Healey said meant “no change for 3 in 4 claimants”. Tax rates on income from property and savings will rise by a further two percentage points from April 2027, with no change to tax on dividends or employment income.
Online marketplaces face stronger requirements to stop sellers avoiding VAT, and HMRC will receive funding and stronger powers to collect overdue tax. Around 2,000 small brewers and cider makers will share £10m of alcohol duty relief.
Tariffs will be suspended on more than 100 supermarket products, including baked beans, chocolate and gherkins, as well as fertiliser and kerosene heating oil.
Wages, savings and spending
The National Living Wage and the National Minimum Wage will both rise by 3.9 per cent, affecting 2.3 million workers. The National Living Wage will go from £12.71 to around £13.20 and the National Minimum Wage from £10.85 to around £11.27.
The cash ISA limit will stay at £20,000 a year, and Healey said he would work with the sector on a new Starter ISA for first-time investors. Self-employed fathers and partners will become eligible for paid parental leave for the first time.
On devolution, 20 per cent of business rates revenue will go to Mayors from next year, with 100 per cent retained locally by the end of the decade.
Healey confirmed £430m for rough sleeping and £10bn of support for Ukraine. He reiterated the targets of 3 per cent of GDP on defence by 2030 and 3.5 per cent by 2035, which Prime Minister Andy Burnham said on Monday the Budget would set out a path towards, but said detail would come at next year’s Spending Review.
