Budget 2026: Energy payments, wage rises and savings tax changes in Healey's first Budget

Chancellor John Healey has framed his Budget as offering families "breathing space" amid rising prices, with annual energy bills forecast to increase by hundreds of pounds in January. The announcements cover energy costs, wages, pensions, savings and a range of smaller measures affecting household finances. Households in council tax bands A to D in England will receive a one-off £100 Household Energy Payment from January, funded by an extra tax on banks and paid directly into bank accounts. The money can be spent on anything, although it is designed to offset energy bills, which some forecasts suggest could rise by around £400 to £2,100 a year in January. Devolved administrations in Scotland, Wales and Northern Ireland will receive equivalent funding and will decide whether to introduce the same payment. Council tax band details can be checked on annual bills or the government's website, which struggled with traffic after the announcement. Further energy relief comes through the extension of the VAT cut on electricity bills, introduced in October, which will now run to July rather than ending in April. Standing charges for gas connections will be scrapped in England, Scotland and Wales next year "or as soon as possible after", with the fixed daily charges shifted onto unit prices. The Treasury calculates that 60% of households will save an average of £45 a year, with lower users gaining the most, though higher users, including large low-income families, will pay more than they currently do. The 5p cut in fuel duty, introduced by Rishi Sunak in 2022, has been extended to July after being scheduled for phase-out from January. Drivers will continue paying 52.95p per litre. Motor fuel prices have risen sharply owing to the continued impact of the Iran war, with diesel recently hitting records above £2 per litre. Filling a typical family car with diesel now costs around £30 more than in late February, while a tankful of petrol costs about £23 more. On savings, Healey scrapped his predecessor Rachel Reeves' plan to reduce the annual cash Isa allowance to £12,000 for under-65s from April 2027, replacing it with a new "Starter Isa" for first-time investors. However, savings tax rates will rise by four percentage points to 24% for basic rate taxpayers and 44% for higher-rate taxpayers from April, applying to interest beyond the £20,000 Isa allowance and the existing savings income allowances of £1,000 and £500 respectively. The Office for Budget Responsibility said measures reducing private landlord returns, alongside steps over the past decade, collectively risk leading to a steady rise in rents. Minimum wage rates will rise by 3.9% in April. The National Living Wage for workers aged 21 and over will increase to £13.21 an hour from £12.71, the rate for 18 to 20-year-olds will rise to £11.27 from £10.85, and the rate for 16 and 17-year-olds and apprentices will go up to £8.31 from £8. The figures mean no progress this time on Labour's manifesto promise to narrow the gap between older and younger workers. The ongoing freeze in income tax thresholds went unmentioned in the Budget, but means pay rises could drag workers into higher tax brackets. The state pension will rise 3.9% under the triple lock. The new flat-rate pension will be £250.70 a week, or £13,036.40 a year, up £488, while the old basic state pension will be £192.10 a week, or £9,989.20 a year, up £374.40. A new Pension Tax Allowance means pensioners with income up to the value of the full new state pension will not pay income tax until at least 2030. First-time buyers will see the First Time Buyer Isa replace the often-criticised Lifetime Isa, with the penalty for withdrawals when buying a home above the £450,000 threshold scrapped. A separate Your First Home equity scheme will let first-time buyers in England purchase new-build homes with a 2.5% deposit, supported by a loan worth 20% of the property's value. Student loan rates remain unchanged, described only as being kept under review, with the Plan 2 repayment threshold frozen at £29,385 from April for three years. Other measures include tripling the trading allowance for side hustles from £1,000 to £3,000 from April 2027, tariff removals on 100 food items that could save households up to £21 a year, a taper mechanism for carers' earnings from 2030, two weeks of paternity pay of up to £194 a week for self-employed fathers, a permanent 55p per mile tax-free mileage rate for up to 10,000 miles, and the prime minister's plan to reinstate the £2 bus fare cap in England from January throughout 2027, with funding provided to the devolved nations.