Chancellor John Healey MP’s first Budget focused on providing immediate relief from rising costs while setting out the Government’s longer-term ambitions for investment, innovation and economic growth.
For businesses, there were some welcome announcements, particularly around business rates relief, reducing red tape and targeted support for manufacturers facing high energy costs.
The Chancellor also placed an emphasis on “unleashing Britain’s innovation power”, with measures to support entrepreneurs, manufacturing, artificial intelligence (AI) and defence investment.
Headline announcements
The Chancellor opened his speech by describing it as a Budget for the “working people of Britain” and “British businesses, big and small”.
He outlined three priorities: providing “breathing space” from the rising cost of living and doing business, supporting innovation and economic growth across the UK, and addressing longer-term challenges around energy, national security, public services and housing.
“Breathing space” was mentioned no less than 13 times.
Healey also reiterated the Government’s commitment to fiscal discipline.
Business growth
- Business rates relief: The threshold for 100% Small Business Rate Relief will increase from a rateable value of £12,000 to £18,000 for eligible retail, hospitality and leisure businesses in England from April 2027. This is expected to remove around 70,000 businesses from paying business rates altogether.
- Reducing red tape: The Government will seek to cut outdated regulations and administrative burdens on businesses by re-establishing the Better Regulation Executive.
- Support for young entrepreneurs: A new Young Entrepreneurs Allowance will cover a year’s living costs for eligible young founders while they develop their business ideas.
- Business Asset Disposal Relief: The lifetime limit for gains eligible for Business Asset Disposal Relief will fall from £1 million to £500,000 from April 2027. The Government says three-quarters of claimants will still receive relief on their entire gain.
- Support for female founders: A new scale-up programme will support female entrepreneurs, while the British Business Bank will double its commitments to women-led businesses and funds to £200 million.
- Founders’ Relief: A new capital gains tax relief will introduce a 10% rate on lifetime gains of up to £10 million for qualifying founders of successful UK businesses.
- Trading allowance: The tax-free trading allowance will increase from £1,000 to £3,000 from April 2027, providing additional support for people starting new ventures.
Cost of living and taxation
- Household energy support: A £100 Household Energy Payment will be provided to up to 20 million households in England in Council Tax bands A–D from January 2027, with funding allocated to devolved governments to provide similar support.
- VAT on electricity: The temporary reduction in VAT on qualifying domestic electricity bills from 5% to 0%, previously due to end in March 2027, will be extended until July 2027.
- Energy standing charges: The Government has asked Ofgem to abolish domestic gas standing charges by the end of 2027, or as soon as possible afterwards, and will outline further reforms to electricity standing charges next year.
- Fuel duty: The existing 5p-per-litre fuel duty cut will be extended until 1 July 2027.
- ISA allowance: The annual cash ISA allowance will remain at £20,000, providing continued tax-free savings opportunities.
Employment and young people
- National Living Wage: The National Living Wage will increase by 3.9% to £13.21 per hour from April 2027. The National Minimum Wage for workers aged 18–20 will also rise by 3.9% to £11.27 per hour.
- Apprenticeships: £100 million will be invested over two years to expand local apprenticeship services, helping young people access opportunities and connecting employers with potential recruits.
- Workplace equality: The Government outlined plans to improve fairness in pay and progression for women.
- Parental support: From April 2029, eligible self-employed fathers, partners and adopters will be able to access parental pay, extending support to groups currently excluded from the system.
- Recruitment and retention: The Chancellor reiterated plans to reform skilled worker visas and non-compete clauses in employment contracts, helping fast-growing businesses attract and retain skilled talent.
Technology and AI
- British Data Centre Covenant: The Chancellor announced a new covenant designed to support data centre development while requiring investment in local communities, job creation and protection of water supplies. Critical data centres will also benefit from improved access to grid connections and, where necessary, permission to generate power on-site while awaiting connection.
- AI investment: The Government announced additional investment in AI safety and security, alongside further backing for a Sovereign AI Unit to support strategically important British AI companies.
- Public sector innovation: A new AI Challenge Prize will encourage innovative applications of AI across public services.
Defence
- Support for Ukraine: More than £10 billion in additional financial support will be made available to Ukraine through lending, export finance and military assistance, including £500 million in urgent military support this winter.
- Defence financing: A new Innovative Defence Financing Taskforce will explore alternative financing models and opportunities to attract private and international investment into defence.
- Defence spending: The Government will set out its pathway to spending 3.5% of GDP on defence by 2035 at the 2027 Spending Review, with an interim target of 3% by 2030.
- Investment in defence businesses: Up to £5 billion in investment and lending will be made available over four years through the National Wealth Fund and British Business Bank to support defence-related, dual-use and other national security businesses.
Manufacturing
- Industrial energy costs: The British Industrial Competitiveness Scheme will provide eligible energy-intensive manufacturers with electricity bill reductions of up to 25% from April 2027. More than 10,000 businesses are expected to benefit, with additional payments reflecting support for the 2026–27 financial year.
- Aerospace investment: The Government announced plans to co-invest with Rolls-Royce in a 10-year, £2.5 billion programme to develop next-generation gas turbine technologies for civil and defence aerospace, supporting UK engineering and manufacturing capabilities.
Housing market
- First Time Buyer ISA: A new First Time Buyer ISA will replace the Lifetime ISA for new savers from April 2029. It will offer a 25% Government bonus towards qualifying first-home purchases, while existing Lifetime ISA holders will be able to continue using their accounts.
- Your First Home scheme: A new £4.7 billion equity loan scheme will help eligible first-time buyers who may struggle to get onto the property ladder without family financial support. It will offer a 20% equity loan towards qualifying new-build properties, with a minimum deposit of 2.5%. Applications are expected to open in February 2027, with the first loans issued from April.
- Social housing: Land sold to registered social housing providers will benefit from a zero rate of VAT from April 2027. An additional £1.5 billion will also be allocated to the Social and Affordable Homes Programme, supporting the delivery of around 10,000 homes in England.
Overall, what does the Budget mean for businesses and consumers?
For UK businesses, measures aimed at reducing operating costs, encouraging investment and supporting entrepreneurship could offer welcome relief, particularly for SMEs and businesses in energy-intensive sectors. However, changes to tax reliefs and increases in minimum wage rates will also require employers and business owners to review their financial plans.
For consumers, measures to reduce energy bills, support wages and make homeownership more accessible may help ease some of the pressure on household finances. But there will always be winners and losers.
All in all, this Budget appears to have largely achieved what it set out to do: provide “breathing space” for the Government by maintaining stability and offering some limited relief in a challenging economic environment, while leaving some more difficult decisions for next year’s Spending Review.
What did our clients say?
John Nelson, Managing Director, eCapital UK, commented on behalf of SMEs overlooked by these measures:
“The Budget offers welcome support for small retailers, hospitality businesses and entrepreneurs, but if the government’s ambition is growth in every postcode, it is a mistake to overlook the established SMEs that employ people and keep the economy moving. Growth must also be possible for the manufacturers, hauliers, wholesalers and suppliers that underpin our regional economies.”
Iona Martin, Tax Partner at Bishop Fleming, highlighted a number of personal finance headlines, including:
“Keeping the £20,000 Cash ISA allowance for all adults is particularly significant given the Chancellor’s decision to increase tax rates on savings income from April 2027. The previously planned reduction to £12,000 for under-65s has now been abandoned, meaning savers of all ages can continue to put up to £20,000 each year into a Cash ISA. This becomes more valuable as taxable savings income will be subject to rates of 24%, 44% and 49% for basic, higher and additional-rate taxpayers respectively from 6 April 2027.”
Chris Hammond, Data Centre Lead at LRQA, commented on the new Data Centre Covenant:
“We’re seeing governments and regulators worldwide set strict expectations for data centres before granting approval. Like major energy developments, data centre projects are complex, high-stakes and unforgiving of gaps in planning and execution. Delays in permitting and commissioning can push budgets and timelines off track. This makes early-stage risk assessments, design appraisals and sustainability planning vital to identifying and addressing quality and compliance gaps that could otherwise lead to costly overruns and delays.”
