It was an interesting Budget. In absolute terms, this was a Budget with an enormous number of individual policies (98 to be precise) but each measure had a record-low average scorecard value. In a way, you could say that this was a Budget consisting entirely of marginal tweaks.
But even marginal tweaks come at a cost and at the end of the day the promised goal of this Budget is to ensure that Britain can balance the books by the end of this Parliament.
As ever, some marginal tweaks will bring marginal improvements and other measures will end up doing more harm than good. I classified the measures into three broad categories and I’ll be sharing some thoughts on the most interesting announcements of the 98 we had available to analyse.
Cost of living
£100 energy payment – The biggest of the marginal tweaks is the untargeted energy subsidy to all households in council tax bands A to D. The overall support package, worth over £2bn, is untargeted, mainly because council tax bands don’t really offer an indication of household incomes or need. It is unlikely this will offer meaningful relief for the people most in need, so the rationale for this is a bit unclear beyond the fact that it is easy for the state to administer.
Gas standing charges to be abolished – This is a welcome step towards recognising that energy bills are made more expensive by levies and regulations. Removing these is a good way of easing the cost of living, but there is always the worry that the Government may attempt to recoup these savings through general taxation later on.
Customs tariffs reductions – It’s no secret that people at the IEA tend to prefer free trade, encompassing ideally a unilateral tariff-free regime and as few non-tariff barriers as can be negotiated with international partners. Consumers will benefit from more choice at lower prices, so this is certainly a step in the right direction.
Cost of doing business
Minimum wage increase – Rates rise by 3.9 per cent from April 2027, taking the National Living Wage to £13.21 an hour. Given the current state of the labour market and the highest youth unemployment since 2011 (15 per cent), it’s hard to see how increasing the cost of hiring will help anyone into the job market. Businesses which rely on minimum-wage workers, such as the hospitality sector, will be most severely affected. And they just so happen to be overly reliant on young workers in particular. The Government should consider easing the cost of hiring and the associated regulations to help the labour market absorb more inactive people who want to work.
£15.4bn for the National Wealth Fund – The state-backed investor that ministers want to pick winners in sectors such as AI, defence and clean energy was allocated further funding today. It has made a pre-tax loss in each of the last four years. Industrial policy typically lacks clear metrics of success, making waste hard to spot, especially when the organisation that makes the investments also judges whether they have added value.
Cut in capital gains tax for founders – Founders will pay a reduced 10 per cent rate on their first £10m of lifetime gains. Founders can keep more of the proceeds of their success to reinvest. Private investors allocating their own money make better decisions than officials allocating taxpayers’ money.
General tax and spend
Fiscal drag continues – The frozen thresholds for income tax alone have brought an additional £34bn to the Exchequer this year. Despite the large collection of small measures, the largest tax increase on workers has been levied automatically without much advertising. Every subsequent Budget will continue to raise the overall tax burden to new historic highs on the back of fiscal drag alone.
Pension tax allowance – From April 2027 to April 2030, eligible pensioners will receive tax relief protecting income up to the full new state pension. This essentially establishes a ‘quadruple lock’ regime, which will increase welfare spending to new highs.
No fiscal consolidation – Any tough decisions to get the budget balanced have been postponed. The Chancellor relies on hopeful forecasts to predict a budget surplus by the end of the Parliament. The Budget is already committing the country to borrowing much more than Rachel Reeves originally intended in her own Budget in November 2025. Moreover, the OBR has significantly reduced the growth forecast for next year, from 1.6 per cent to 1 per cent, so the surplus forecast should be taken with a pinch of salt.
Overall, it’s all business as usual – more borrowing and higher taxation to patch up the budget. The one thing that is interesting about a large Budget full of small measures is that it reveals something about Britain’s policy instincts. For instance, one thread uniting a lot of British policymaking is that every policy must achieve two things at once: restricting supply and subsidising demand.
For example, housing is difficult to build and this will be accompanied by a demand subsidy in the form of the ‘Your First Home’ scheme. People will be paid to save for a house deposit, which will in turn increase prices and deepen the housing crisis in the absence of a steady stream of new homes.
Another example is the minimum wage hike. It will severely restrict businesses’ capacity to hire people, but this will be accompanied by a selective business rates relief system.
Similarly, energy infrastructure is hard and slow to build, but households will receive a blanket subsidy to help them cope with the cost of living.
To the Chancellor’s credit, some of those 98 measures do try to address supply-side issues in a limited way, such as easing restrictions on brownfield development or reducing customs duties. But none of the measures addresses the worst obstacles to economic growth that the country faces.
As a private landlord and semi-retired pensioner who has earned and been taxed on every pound I have, I am surprised no mention is made of how this government has targeted people like me who have little chance of doing anything about it. Except to vote Labour out at the earliest opportunity. It was a timid budget which smacked of plans for an early election. Bring that on!