17th October 2026
With public spending under pressure and household bills still a concern, Chancellor John Healey faces difficult choices. Tax rises, help with energy costs and changes to property taxation are all in the frame, but the final package remains uncertain.
The UK Budget on 28 October is shaping up to be an exercise in balancing competing demands rather than a day of generous giveaways. Chancellor John Healey must find a way to protect public services, meet the Government’s financial commitments and respond to the cost of living, while convincing financial markets that Britain can keep its borrowing under control.
The difficulty is that the Government has limited room to manoeuvre. The Institute for Fiscal Studies has warned that higher inflation, rising government borrowing costs and pressure on public services have weakened the outlook for the public finances. Its recent analysis suggests the Chancellor faces a substantial gap between existing plans and the money needed to meet his objectives. IFS analysis
So what might appear in the Budget?
Income tax may stay put, but that does not mean tax bills will stand still
The Government has pledged not to increase the main rates of income tax, VAT or employee National Insurance. That makes a direct rise in these headline taxes less likely, although political commitments and final Budget decisions are not quite the same thing.
One possibility is that the Chancellor continues to rely on frozen tax thresholds. When wages and pensions rise but the point at which higher tax rates apply does not, more income can become taxable or be pushed into a higher band. This is known as fiscal drag. It can increase tax receipts without an announced rise in the headline rates.
Other possibilities include changes to capital gains tax, pension tax reliefs or the treatment of investment income. These are areas being discussed by tax advisers, but there is no guarantee that any particular change will be announced. The Government may decide that making too many changes at once would discourage investment or add to uncertainty.
Banks could be asked to pay more
One of the more prominent possibilities is an increase in the tax surcharge paid by banks. Reports suggest the Government has considered raising the surcharge from its current 3% to 8%, potentially raising additional billions of pounds a year.
The argument for such a move is that it could bring in significant revenue without breaking the pledge on the main rates of income tax, VAT and employee National Insurance. Critics warn that a higher tax burden could affect investment, lending and the attractiveness of Britain as a place to do business.
The International Monetary Fund has cautioned against relying on higher taxes on banks or workers, arguing that property taxation, broader consumption taxes and better-targeted public spending deserve consideration instead. The debate illustrates the Chancellor’s problem: almost every route to raising money has potential economic or political costs. Reuters report
Will property owners face another bill?
Property taxation is another possible target. There has been speculation about lowering the threshold for a proposed annual surcharge on high-value homes from £2 million to £1.5 million. If adopted, that would bring more properties within its scope.
A measure of this kind would be aimed at owners of expensive homes rather than ordinary homeowners, although property values and the precise rules would determine who was affected. Other possible changes could involve capital gains tax or the reliefs available to investors and landlords.
These proposals should be treated as possibilities, not settled policy. The Chancellor will have to weigh the revenue they might raise against the risk of creating new complications in an already heavily taxed property market.
[/b]Energy bills could bring some relief[/b]
Energy costs are likely to be among the most politically sensitive issues. The Government has indicated that it wants to help households and businesses facing higher bills, and reports suggest that more than £1 billion of targeted support may be considered.
One possibility is an expansion of the Warm Home Discount or a similar scheme to help households struggling to pay their energy bills. Targeted assistance would cost less than a broad subsidy for every household, but it would leave some people outside the eligibility rules despite facing high costs.
Fuel duty is another question. The temporary 5p-a-litre cut introduced after Russia’s invasion of Ukraine has remained in place longer than originally intended. The Chancellor must decide whether to allow it to end, extend it again or alter the timetable. An increase would affect motorists and could feed into the cost of transporting food and other goods.
For rural Scotland, the consequences matter particularly. Many households have little practical alternative to driving, while homes heated by oil do not necessarily benefit directly from measures aimed at reducing mains gas or electricity bills. A Budget that offers help to one group may leave another facing much the same pressure as before.
Small businesses and the high street
Business rates could also feature. There is speculation about further relief for retail, hospitality and leisure businesses, alongside changes that would shift more of the burden towards larger commercial properties.
For towns such as Wick and Thurso, the details could matter more than the headline announcement. Pubs, shops, hotels and other local businesses face a combination of staffing costs, energy bills, weak consumer spending and the challenge of attracting customers. A reduction in business rates could help, although it would not by itself create more customers or reverse every problem facing the high street.
The Chancellor may also look at raising money through better tax collection and reducing avoidance, rather than relying entirely on new taxes. Improving compliance is a reasonable objective, but the sums actually collected will depend on what can be recovered and how quickly.
Welfare, pensions and public services
Spending decisions may prove just as important as taxation. Defence commitments, health and social care, welfare spending and the everyday costs of running public services all compete for limited resources.
The Government could seek savings through changes to welfare rules or by tightening the way some benefits are targeted. Such changes may improve the public finances, but they can also affect households already struggling with living costs. The detail would be crucial.
Pensions will attract particular attention. Any suggestion of changing the State Pension triple lock would have major consequences for pensioners and for future public spending. There is debate about whether the policy is affordable indefinitely, but that does not mean the Chancellor will change it in this Budget.
For Scotland, the Budget will also matter because changes to UK spending plans and tax revenues can affect the funding available to the Scottish Government through the devolved funding arrangements. The eventual impact on local services will depend on the decisions taken in Westminster and how the Scottish Government chooses to allocate its own budget.
The danger of doing too little
The Chancellor faces a difficult choice between raising more money, reducing spending, accepting less financial room for manoeuvre or hoping that the economy performs better than expected.
Raising taxes can discourage investment and leave households with less to spend. Cutting services can create pressures elsewhere, including in health, social care and local government. Borrowing more may provide short-term relief, but it can become more expensive when interest rates and government borrowing costs are high.
There is also a risk in relying too heavily on optimistic forecasts. If growth disappoints or international tensions keep energy prices and inflation high, the Government could find itself facing another difficult financial decision sooner than expected.
A Budget of small changes rather than big surprises?
One plausible outcome is a Budget built around targeted measures rather than sweeping tax reform: some additional revenue from selected taxes, continued pressure on spending, and limited assistance for households or businesses facing the greatest difficulties.
But that is an informed possibility, not a prediction of the final package. The official economic and fiscal forecasts, together with the Chancellor’s announcements on 28 October, will determine how much of the speculation proves correct.
For households, the most important question will be what happens to their disposable income after tax, energy, transport and other essential costs. For businesses, it will be whether the Budget gives them enough confidence to invest, recruit and expand. For places such as Caithness, the test will be whether national decisions translate into practical support, stronger local opportunities and services that people can rely on.
The Chancellor may be able to announce measures that ease some immediate pressures. The harder task is to improve the underlying prospects for growth and public finances without passing too much of the bill to households, workers, businesses or future taxpayers.
Until the Budget is delivered, the headlines will remain a mixture of reported proposals, political commitments and informed guesswork. On 28 October, the distinction between them should become clearer.