Healey doubles bank levy to 6% to fund £100 payments to 20m homes

Chancellor John Healey doubled the additional levy on bank profits to 6% and raised taxes on savings and rental income to fund a £100 winter payment to 20 million households, as official forecasts pointed to a cost of living crisis with no end in sight.

The £100 payout goes to all English households in council tax bands A-D and anchors a £2.6bn cost of living package, a sum that includes funding for the Scottish and Welsh governments. Healey said he hoped they would run similar schemes. The payment would "take the pressure off in the coldest months, and see people through to the spring", he told MPs.

"I know that with the conflict in the Middle East, rising energy bills are a real worry. I know that people look to government at times like this, not to solve all their problems, but to give them a bit of breathing space," Healey said in his hour-long, low-key speech.

He blamed "global economic storms" for the grim outlook, citing the war in Iran pushing up oil and gas prices.

How is the package funded?

Three revenue measures cover the cost:

• The additional levy on bank profits doubles to 6%, running for 15 months only
• A 2p increase in tax rates on income from property
• The same 2p rise applied to income earned on savings

The bank tax rise proved smaller than the industry feared. Bank shares ranked among the top risers in the FTSE 100 on Wednesday.

The property and savings tax drew immediate criticism. The Office for Budget Responsibility warned it risks "leading to a steady rise in rents" by deterring landlords from the market, cutting supply and passing costs to tenants.

Laura Suter, director of personal finance at AJ Bell, said: "Savers will be hit with another hefty tax rise on their savings interest, adding to the squeeze on their savings over the past few years." She added that landlords could respond with rent hikes, or simply sell up in favour of "other assets that have lower taxes and less government tinkering".

What did the OBR forecast?

The government's independent forecaster painted what its David Miles called a "pretty grim picture" for household finances. Inflation rises to almost 4%. Growth next year comes in at just 1%, roughly half a percentage point below the March forecast. Household disposable incomes show "virtually no growth".

Even by 2030-31, the OBR expects real disposable household incomes to sit only 2% above pre-Covid levels.

Energy provider EDF predicts the Ofgem price cap, which sets consumer bills, will rise by £466 in January.

Ruth Curtice, chief executive of the Resolution Foundation, criticised the £100 handout as badly targeted. "The chancellor has missed the mark with badly targeted support that has left families facing a tough winter as energy bills rise," she said.

The New Economics Foundation went the other way, saying Healey lacked ambition. "The £100 support with energy bills will provide some welcome relief, but the chancellor could have been braver in the face of what we are up against," said deputy chief executive Hannah Peaker.

What happened to the fiscal rules?

Healey promised to stick to Labour's self-imposed fiscal rules. Higher inflation and interest rates have pushed the government's interest bill up by £14bn this year alone, he said.

The OBR confirmed he meets the key rule - balancing day-to-day spending with tax revenues - but with headroom of £15bn by 2029-30, down from the £24bn Rachel Reeves had built up in the spring. Borrowing runs higher short term; Healey pledged to rebuild the buffer to £22bn by the end of the five-year forecast. "That is what a buffer is for. Use it when you need it, rebuild it when you can," he said. Bond markets appeared unruffled.

Helen Miller, director of the Institute for Fiscal Studies, warned the tight plans store up trouble. "Next year's spending review will be a crunch point, and looks very tough for many departments, whose budgets will be squeezed by higher inflation forecasts," she said.

What else changed for business and transport?

As expected, Healey cancelled fuel duty rises planned by Rachel Reeves and extended the VAT cut on electricity prices to next summer. He raised the rates relief threshold from £12,000 to £18,000 for retail, hospitality and leisure firms, funded by higher taxes on gambling and vape shops.

The Budget also hinted at easing migration curbs, letting some industries lower visa salary thresholds to hire international talent. London mayor Lord Sadiq Khan gained powers to extend the Bakerloo line, plus a pledge that cross-Channel trains will stop at Stratford International. There is cash to explore hosting the Olympics in "a northern city".

Conservative leader Kemi Badenoch said Britain had "overspent, overborrowed and overtaxed", and attacked delayed decisions on defence and welfare. Healey said he will tackle welfare after reports from Alan Milburn on youth unemployment and Sir Stephen Timms on disability benefits, expected next month. Badenoch argued the deferred decisions to next year's spending review signalled Burnham was keeping his options open on an early election; Burnham ruled one out for at least 12 months. "I'm not thinking about my own party and its prospects. I am thinking about people, and I'm thinking about what I can do to help them," he said.

With the OBR forecasting near-flat living standards and a £466 energy cap rise landing in January, the £100 payment looks thin against the winter ahead - and the real fiscal fight arrives at next year's spending review.