Healey's First Budget: Energy Payment, Fuel Duty Extension and Tax Changes Explained

From January, if you live in a council tax band A to D home in England, a one-off £100 will land in your bank account. Chancellor John Healey calls it a Household Energy Payment, and it sits at the centre of his first Budget, which he has framed as "breathing space" for families squeezed by rising prices. The money comes from an extra tax on banks. Scotland, Wales and Northern Ireland will receive equivalent funding and will decide for themselves whether to pay out the same way.

The timing matters. Some forecasts suggest a typical annual energy bill could climb by around £400 to £2,100 in January, so the payment covers only a portion of that rise. Although it is labelled for energy, recipients can spend it on anything. The government's website struggled with traffic after the announcement, as people tried to check their council tax band. The VAT cut on electricity bills, introduced in October, will now run to July rather than ending in April.

Gas standing charges, the daily fixed fee for being connected, will be scrapped in England, Scotland and Wales next year, or as soon as possible after. The cost moves into the per-unit price. The Treasury calculates that 60% of households will save about £45 a year, with lower users gaining most. Higher users, in the biggest homes but also large low-income families, will pay more than now. The government wants to extend similar reform to electricity standing charges later.

Drivers get an extension too. The 5p fuel duty cut, introduced by Rishi Sunak in 2022 and due to be phased out from January, will last until July, keeping the levy at 52.95p per litre. Fuel prices have jumped because of the continuing effects of the Iran war, and diesel recently passed £2 a litre, a record. Filling a typical family car with diesel costs about £30 more than in late February; petrol about £23 more.

On savings, Healey has dropped Rachel Reeves's plan to cut the cash Isa limit for under-65s from £20,000 to £12,000 a year from April 2027. A new Starter Isa for first-time investors is planned instead. But savers with large pots, or who do not use their Isa allowance, will pay more from April: tax rates on savings income above the allowances (£1,000 for basic-rate payers, £500 for higher-rate) rise four points, to 24% and 44%. Landlords may also pay more, and the Office for Budget Responsibility said these steps, together with a decade of measures cutting private landlords' returns, "collectively risk leading to a steady rise in rents".

In April the minimum wage rises 3.9%. The National Living Wage for those 21 and over goes from £12.71 to £13.21 an hour; ages 18 to 20 from £10.85 to £11.27; and under-18s and apprentices from £8 to £8.31. That leaves no progress on Labour's manifesto pledge to narrow the gap between older and younger workers. The Budget did not mention the continued freeze on income tax thresholds, which means pay rises can pull people into higher bands.

The state pension rises 3.9% under the triple lock. The new flat-rate pension reaches £250.70 a week (£13,036.40 a year, up £488), and the old basic pension £192.10 a week (£9,989.20, up £374.40). A new Pension Tax Allowance means pensioners with only the full new state pension as income will pay no income tax until at least 2030.

For first-time buyers, Healey confirmed a First Time Buyer Isa to replace the Lifetime Isa, and scrapped the withdrawal penalty on Lifetime Isa savings used for homes above £450,000. The Your First Home scheme will let England's first-time buyers purchase a new-build with a 2.5% deposit and a loan worth 20% of the price. Student loan rates are unchanged and "under review", while the Plan 2 repayment threshold stays frozen at £29,385 for three years from April.

Other measures were announced earlier: tariffs removed from 100 food items, worth up to £21 a year combined with June's suspensions; a taper for carers' earnings limits from 2030; two weeks of paternity pay for self-employed fathers; a permanent 55p-per-mile tax-free rate for the first 10,000 work miles; and the £2 bus fare cap in England through 2027. April is the next date to watch.