Budget 2026

New PM, new Cabinet, new Chancellor of the Exchequer, another budget. John Healey, who walked from his Defence role in June in protest at lack of spend, is now responsible for making sure everything adds up.

If the polls are to be believed there’s certainly been a bounce in positivity since Andy Burnham took over in July, but perhaps the everyday realities of governing within such tight financial constraints may temper optimism.

Warts and all, this is my summary of today’s budget and an interpretation of what this means for you.

Let’s start with a bit of economic context

What seems to dominate economic policy at the moment is our fixation on ‘fiscal headroom’. This seems to be to this layman simply a product of an OBR algorithm which predicts the differences between tax and spend into the future.

A small tweak to one or more of the forecasts that feed into this algorithm, can create or reduce this ‘headroom’, and therefore our ability to spend, by billions and billions of pounds.

The IFS and the OBR themselves agree that these forecasts are highly uncertain. Is headroom becoming more of a political tool than as a demonstration of fiscal discipline.

Growth-wise we’re doing ok these days, the largest in the G7 so far this year, owing largely to our performing technology and communication sectors.

But, like most developed nations, rising debt and higher borrowing costs are a problem, as is the continuing pressures on inflation and interest rates due to the ongoing conflict in the middle east.

Business tax

No changes announced to the headline rates of Corporation tax, VAT, Employers NI, or income tax and NI charged on self-employed businesses.

The National minimum wage (NMW) will increase 3.9% from £12.71 to £13.21 for 21 year olds and over and from £10.85 to £11.27 for 18 to 20 year olds. As an example, if your business employs a full time 21 year old on the NMW, basic pay will increase by £975 and employers NI by £146 per annum.

The Corporation tax surcharge on Banks profits will increase by 3%, less than expected, resulting in a lunch time surge in share prices amongst financial institutions.

Self-employed individuals will benefit from a couple of measures - an increase in the tax free trading allowance from £1,000 to £3,000 to incentivise new ventures and innovation, and the ability to access paternity pay for Dads and same sex partners going forward.

Personal tax

No changes announced to the headline rates of Income tax or Employee NI.

Some of you may have become familiar with the term fiscal drag, the freezing of tax thresholds which results in a greater portion of our income being exposed to higher rates of tax, as wages increase through inflation.

Due the freezing of the personal allowance (£12,570), the full annual state pension entitlement has become exposed to tax for the first time. As a response, the Chancellor has introduced additional relief so that tax isn’t charged on those solely dependent on the state pension.

The planned 2% premium on the rates of income tax applied to savings and property income is not just going ahead, it has been doubled to 4% from April 27. This puts extra emphasis on the use of ISAs to protect your savings from income tax. Landlords already contending with rising costs, tighter regulation and higher and more onerous taxes, may either pass this on to the tenant or view it as the final straw….

Talking of ISAs, the tax free amount will remain at £20,000 - there were plans to cut the cash element of the ISA allowance to £12,000.

Other nuggets

• Business rates – the rateable value for when business rates become chargeable will increase from £12,000 to £18,000.

• Devolution – greater spending powers, access to income tax receipts and improved borrowing facilities for regional mayors

• Energy & Fuel – a £100 payment to council tax band A to D households, extension of VAT cut on electricity bills and new 55p / 35p mileage rates

Something to keep an eye on for future years

The budget contains a section entitled a ‘modern and fair tax system’. As well as the continuing trend towards digitisation, there were a couple of paragraphs in this section that particularly stood out that I wanted to share with you.

2.33 - the government will modernise the existing Payments on Account system for Income Tax Self Assessment (ITSA), following consultation with stakeholders and affected taxpayers. From April 2029, taxpayers who already make Payments on Account will make smaller, more regular contributions towards their tax bill throughout the year, bringing payment closer to when income is earned.

This is a definite indication that there will be a move towards more frequent payments of self-assessment tax bills during the tax year itself, starting with those businesses and landlords already in scope for Making-Tax-Digital.

2.36 - In addition to these measures, the government is modernising the rules that determine how distributions from companies to individual (non-corporate) shareholders are taxed, ensuring that similar transactions are taxed consistently through a clearer framework.

For those Company Directors who have looked closely at their tax returns this year, you will have noticed the additional disclosures around shareholdings, dividends, and the way in which earnings are calibrated. Perhaps this indicates a move towards a separate tax regimen for Directors of close companies, to steer remuneration towards salary and away from dividends.

Something to keep an eye on.

Summary

Generally seen as not hugely radical. Some nice token offerings to assist in the cost of living, but when you look into it, the amounts are fairly modest.

Landlords will feel a bit aggrieved and savers should take a look at where their cash is to limit their exposure.

But perhaps the more interesting developments are those buried in the small print. The direction of travel towards greater tax transparency, more frequent reporting and earlier collection of tax is becoming increasingly clear.