Dr Scott Andrews and Boyd Hargreaves from the University's Business School respond to the Chancellor's Autumn Budget.
The UK Government’s Autumn Budget statement was delivered on 28th October 2026. Exactly 100 days since Andy Burnham stepped out from no 10 Downing Street as the country’s Prime Minister, the Government’s former Defence Secretary now Chancellor, John Healey stepped up to the dispatch box to deliver his first Budget as Chancellor of the Exchequer. He began with a reminder that this budget is “delivered at a time when global uncertainties and pressures are swirling worldwide and hitting people here at home”. Healey spoke of a new approach to “steer us through global economic storms and give people fresh hope for Britain’s future,” whilst paying tribute to the fiscal discipline of his predecessor, Rachel Reeves stating that “she took the difficult decisions required.”
He continued that: “trade tensions are acting as a drag on global economic growth, as is the war in Iran. The UK did not want this war, and it has driven up costs for British families through higher energy costs and higher interest rates.”
Overall, this was a cautious budget showing the significant challenges the UK faces given the significant level of global turbulence currently affecting the UK economy.
Below is a summary of the main points starting with the OBR forecast figures.
UK growth, inflation and debt
The Office for Budget Responsibility (OBR) predicts the UK economy will grow by 1.2% this year, up from a previous estimate of 1.1%. Growth is then expected to slow to 1% in 2027, a downgrade from the watchdog's previous forecast of 1.6%, before lifting back to 1.6% in 2028.
Inflation is predicted to average 3.1% this year and increase to 3.4% in 2027, higher than its previous forecast, before declining to the government's 2% target in 2028.
Government borrowing is predicted to be higher than previously expected in every year of the latest forecast. However, borrowing as a proportion of GDP is expected to fall to 4.2% this year, declining each year of the forecast to 1.8% in 2030/31.
UK national debt set to rise from 96% of GDP this year to 97% in 2028/29, before falling back to 96% by 2031.
Energy bills and cost of living help
- A one-off payment of £100 will be given to households in council tax bands A-D in England to help deal with rising energy bills, with equivalent funding to be given to Scotland, Wales and Northern Ireland. This will assist approximately 20 million households.
- Standing charges, (the fixed fee element customers pay regardless of usage) are to be removed from household gas bills in England, Scotland and Wales. The costs will be now be added to the unit rate.
- VAT cut on electricity bills extended to July 2027
- Freeze on fuel duty extended once again until to July 2027
- Import taxes to be removed on more than 100 food products, including gherkins and marmalade, as well as kerosene and fertilisers
- A 55p per mile tax-free mileage rate for those driving up to 10,000 miles for work made permanent, with the rate rising from 25p per mile to 35p above that distance
- A new scheme taking 25% off electricity bills for 10,000 energy-intensive businesses to launch in April, with payments backdated for energy costs this year
Taxation
- Online marketplaces like Amazon, eBay and Temu to be made responsible for collecting VAT owed by sellers using their platforms
- Surcharge banks pay on their profits to rise from 3% to 6% for 15 months, starting in January 2027
- From April 2027, landlords will face a further 2% in income tax on rental profits
- An extra 2% tax on income from savings and property rental from April 2027.
- The amount of tax-free cash people can put into ISA’s (Individual Savings Accounts) to remain at £20,000 a year contrary to rumours that there were plans to decrease this to £12,000 for the under 65’s.
- The threshold at which High Street shops start paying business rates in England will be increased from £12,000 to £18,000.
- Adult games centres and vape shops will no longer qualify for certain business rates relief
- Taxes on gambling machines with stakes over £1 to rise from 20% to 25%
Wages, benefits and pensions
- The new flat-rate state pension is set to rise by 3.9% from April 2027. This equates to £488 as per the “triple lock” with the old basic state pension to rise by £374.40
- A new tax-free allowance for low-income pensioners, to ensure those with income up to the value of the full new state pension will not pay income tax
- The legal minimum wage is set to rise by 3.9% in April 2027
- Unpaid carers will no longer lose their entire Carer's Allowance if they earn more than £204 a week after tax, with a taper rate introduced instead
- Parental pay extended to self-employed fathers and parents in same-sex couples
Housing and property
- An additional £432m has been added to the initiative to end rough sleeping by Christmas 2026.
- The Your First Home Scheme was introduced providing help first-time buyers in England to purchase a home. The scheme offers government-backed loans to households earning less than £110,000 with an additional London weighting increasing this value to £140,000.
- A new First Time Buyer ISA will be introduced from April 2029. This will replace the Lifetime ISA and is aimed at supporting people to save for a deposit for their first home.
- Lifetime ISA holders buying a property above the £450,000 cap will now pay a 20% withdrawal which has Decreased from 25%
- An extra £1bn has been allocated for social and affordable housing in England, taking total funding for the 10-year programme to more than £40bn
Devolution
- All business rates to be retained locally by the end of the decade, with mayors to keep 20% of revenue from next year.
- A share of income tax receipts to go to mayors from 2028
- Regional bodies and mayors in England to get greater powers over spending, starting with £285m next year for things like housing, transport and High Streets
- Government to work with mayors to design a £1.5bn borrowing facility, enabling investment in larger projects
Defence
- The Defence Investment Plan is to be fully funded through a further 1% cut to capital budgets of other government departments.
- Details of how the government will meet a Nato commitment to spend 3.5% of GDP on defence by 2035 are to be set out at next year's Spending Review, with a target date for 3% in 2030
- Extra £10bn of economic and military support for Ukraine
Additional measures announced
- More than £600 million of investment in projects related to artificial intelligence (AI). This includes an extra £120m for the UK's AI Security Institute and £100 million for a national AI Biosecurity Laboratory.
- A £7 million fund to explore a possible future bid to hold the Olympics and Paralympics in northern England
- A fund to tackle misogyny in schools, at work and in communities to get £15 million
In response to the Autumn Budget, the Institute for Fiscal Studies (IFS) think tank commented that the UK faces the "worst decade for household income growth on record", with IFS Director Helen Miller suggesting that "no amount of temporary cost of living packages" announced in the Budget will fix that, with a warning that big debt and growth problems remain a huge challenge.
According to YouGov polling, 45% of Britons view the budget as fair (compared to 20% unfair), making it the most positively received budget since March 2021. Yet, 56% believe it will make no real difference to their family, and 74% still view the wider economy poorly.
Worcester Business School values its strong partnership with its business community and is committed to keeping a close watch on the outworking of these budget proposals as further details begin to emerge.
Dr Scott Andrews is Head of Worcester Business School and Boyd Hargreaves is a Senior Teaching Fellow in Economics.