UK Budget 28 October 2026: What to Expect, Who Pays and What It Means for Business

The Budget is on Wednesday 28 October 2026, when Chancellor John Healey stands up in the House of Commons to set out Labour’s tax and spending plans for the first time under Prime Minister Andy Burnham.

The government has tried to keep pre-Budget speculation to a minimum, but a steady stream of announcements and briefings has revealed the shape of the package. This guide collects what has been reported by the BBC and others, explains the fiscal logic behind it, and sets out what it could mean for small businesses, employers and households. Nothing here is confirmed until the chancellor speaks, so treat the details as expectations.

The fiscal backdrop: borrowing costs and shrinking headroom

The Budget is being delivered against a difficult financial background. Healey has acknowledged that government borrowing costs are at “historic highs”. Earlier this month we covered the rise in gilt yields to a 19-year high and the Bank of England governor’s warning ahead of this event; that pressure has not gone away.

The key concept is “headroom”: the cash buffer that lets the government meet its own fiscal rules. The BBC explains that the previous chancellor, Rachel Reeves, set two main rules, which the new leadership has vowed to follow: not to borrow to fund day-to-day public spending by the end of this parliament, and to get government debt falling as a share of national income by the end of the parliament. In March, the independent Office for Budget Responsibility (OBR) calculated headroom against the first rule at £23.6 billion.

That cushion has probably shrunk. Estimates differ: KPMG believes it could have fallen to about £12 billion, the Institute for Fiscal Studies estimates around £20 billion, and BBC Verify cites economists who think it could be as low as £11 billion. The reasons are mixed. Higher interest rates on government debt increase interest payments, while higher inflation can push up tax revenue. The OBR will publish a fresh forecast alongside the Budget, and that forecast, not the speech, will determine how much room the chancellor really has.

The political constraint: three tax promises

Before the 2024 general election Labour promised not to increase income tax, National Insurance or VAT, the three biggest revenue earners. That leaves less room to manoeuvre. The BBC reports that raising capital gains tax or extending the so-called mansion tax had been floated but have since been ruled out by government sources. Healey has refused to rule out tax rises in general, and Treasury sources concede the Budget will not involve the scale of announcements seen in recent years.

Where the money could come from

1. Banks

The most widely anticipated measure is a tax rise on banks. Bank bosses told the BBC they expect it, and unions have called for higher taxes after bumper profits. The Treasury has two main levers: raising the surcharge on bank profits, which sits at 3 percent after being cut from 8 percent under the previous Conservative government, or raising the bank levy that is based on balance-sheet size. Think tank Tax Policy Associates estimates that lifting the surcharge from 3 to 5.5 percent could raise £1 billion to £2 billion a year.

Banks argue that this could deter investment and reduce jobs, and research suggests some of the burden can be passed on to customers through lower savings rates or higher borrowing costs. Savers could also be affected indirectly if their pensions hold bank shares.

2. Gambling machines

Former Prime Minister Gordon Brown has urged Healey to raise the tax on electronic gaming machines. The Social Market Foundation estimates that doubling the duty from 20 to 40 percent could raise between £275 million and £460 million, depending on how gamblers react. Anti-gambling groups argue the change could also reduce harm, while operators could respond by worsening the odds.

3. Other options

BBC Verify set out four ways of raising money without hiking income tax. Beyond banks and gambling, the options considered include a range of smaller levers. Because the government wants few surprises, the most realistic expectation is a package of modest revenue measures rather than a headline tax shock.

“Everyday fixes” for households

Ahead of Wednesday the government pre-announced a package of cost-of-living measures, which it describes as “everyday fixes”. The BBC reports that import tariffs will be removed on more than 100 products, including marmalade and gherkins. For marmalade, a 20 percent tariff plus a £19 charge per 100kg is being suspended. The government says combined with existing suspensions on items such as pasta, fruit juice and tuna the changes could save households up to £21 a year. The Conservatives dismissed “cheaper gherkins” as “an insult to families”, and shadow chancellor Andrew Griffith argued that the fixes are already wiped out by higher borrowing costs, taxes and inflation.

Other announced measures include:

• Making permanent a 55p-per-mile tax-free mileage rate for employees driving up to 10,000 miles for work, with the rate above that threshold rising from 25p to 35p per mile.
• Replacing the carer’s allowance earnings “cliff edge” with a taper, so carers who earn slightly more do not lose the whole benefit.
• Two weeks of paternity pay for self-employed fathers, who have previously missed out on payments of up to £194 a week.
• Hundreds of additional Post Office drop boxes.
• Support for farmers facing higher fertiliser costs and households that rely on heating oil.

The BBC also understands fuel duty will be frozen again, and that the 5p fuel duty discount first introduced in 2022 will continue.

Pensioners and the personal allowance

One of the clearest technical issues is the state pension. The full flat-rate state pension is expected to rise by 3.9 percent to £13,036.40 a year from April. That would exceed the £12,570 personal allowance, which would make people living on the state pension alone liable for income tax. The government has pledged not to tax those whose only income is the state pension, and Healey will explain that this will be met through a new tax allowance for low-income pensioners. Details, including how many pensioners are affected, have not yet been confirmed.

Housing and investment

The BBC reports the Budget will include £1 billion for social and affordable housing, taking funding for the ten-year programme above £40 billion. More detail is expected on the “Your First Home” scheme in England, which would let people buy a new-build home with a 2.5 percent deposit and a loan worth 20 percent of the property value. Separately, the BBC reports the UK will invest £100 million in what it calls a “world first” AI Biosecurity Lab, a sign that technology spending will feature alongside defence commitments.

The opposition’s alternatives

The other parties have published their own wish lists. The Conservatives want cuts to green taxes, red tape and benefits to bring energy bills down. Reform UK recommends 60 policies it says would create jobs, including approving the Rosebank oilfield. The Liberal Democrats want a growth and defence partnership with the EU, and the Greens have urged the chancellor to fund energy-bill support by ending a tax relief for data centres. None of these will be adopted wholesale, but they signal where pressure on the government will come from.

What it means for small businesses

Business owners should focus on four areas. First, employment costs: any change to employer payroll costs, mileage rates or statutory pay will flow directly into budgets. The permanent 55p mileage rate removes uncertainty for firms with staff using their own vehicles. Second, financing: if banks are taxed more, some may widen margins on loans, so compare lenders before renewing facilities. Third, sector support: salon owners have called for a VAT cut, which is unlikely given the manifesto pledge, so do not plan around it. Fourth, timing: most measures will take effect from April, so there is time to prepare.

What it means for households

Households should expect small direct savings from tariff cuts and the fuel duty freeze, support for carers and new fathers who are self-employed, and a protection for lower-income pensioners. Those hoping for large tax cuts or major new spending are likely to be disappointed. The BBC’s analysis suggests the economy is stronger now than the headlines imply, but that conditions could become trickier by January.

Key questions for Wednesday

1. How much headroom does the OBR say remains, and is it closer to £11 billion or £20 billion?
2. Which bank tax lever does the chancellor choose, and how much will it raise?
3. Do any “stealth” measures, such as frozen thresholds, appear in the detail?
4. How is the pensioner allowance structured, and who qualifies?
5. How do gilt markets react in the hours after the speech?

The Budget’s real test may come after the cameras leave. Markets, not voters, have set the tone this autumn, and the reaction in government bond yields will signal whether the chancellor has persuaded investors that the plan is credible. We will update this guide as details are confirmed.

Sources: BBC News and BBC Verify reporting from 25–26 October 2026. Figures are estimates or announcements and may change on Budget day. This article is general information, not tax or financial advice.