Budget 2026: What the Government Got Right, and What It Got Wrong

Burnham and Healey’s first Budget was simultaneously underwhelming and overfull. It fell far short of the scale needed to meet the ambition of the government’s own plans for our public services and regions, or to tackle the affordability crisis gripping the country. Despite the record 98 policy announcements, this Budget had almost no real major announcements, with just £7.6 billion in new spending commitments or giveaways, and £6.5 billion in revenue raising measures by 2030-31. To put that into perspective, Rachel Reeve’s two Budgets added £66bn in annual income, and made £190 billion in new spending commitments to the end of this parliament. Of course many of these tweaks and changes will have serious real life implications for people across the country, that’s why we’ve broken down the eight biggest announcements, what they mean and whether they’re taking us in the right direction. 

1. A raft of cost of living support

The headline package includes a £100 energy payment for up to 20 million households, the extension of reduced VAT on electricity bills, the removal of standing charges from gas bills, continued fuel duty freezes, tariff reductions on a range of food products, and support for energy-intensive businesses. For millions of households struggling with rising bills, any additional support will be welcome.

Removing standing charges from gas bills is particularly significant, as these charges have become increasingly unpopular and disproportionately affect low-energy users and low-income households. Although the costs will likely be shifted to usage rates, meaning high-volume users will pay more. This is broadly progressive falling on those with bigger homes, but will also affect less well-off larger families.

This support package will provide some support through a difficult winter, but it treats the symptoms of the cost-of-living crisis, rather than its causes, such as stagnant wages, deteriorating public services, expensive housing, or an energy system that leaves households exposed to volatile markets. These interventions are ultimately a relatively expensive and inefficient way to support living standards. 

The government continues to spend significant sums cushioning people from the consequences of an economy that is increasingly failing to deliver security and prosperity in the first place. Rather than repeatedly subsidising rising costs, ministers should focus on raising the revenue needed to strengthen public services, invest in affordable housing, accelerate the transition to cheap renewable energy and ensure those making extraordinary profits contribute more.

That means going further on taxing wealth and unearned income. Reforming Capital Gains Tax, extending National Insurance to investment income, closing unfair loopholes and laying the foundations for a tax on extreme wealth could raise tens of billions of pounds every year. 

Verdict: Welcome short-term support, but nowhere near adequate progress on the structural causes of Britain’s cost-of-living crisis to meaningfully raise living standards. 

2. HMRC Wealthy plan, powers & capacity

One of the most significant announcements in the Budget received relatively little public attention. Alongside recruiting an additional 670 tax compliance staff, investing £70 million in tax debt recovery and compliance capacity, and giving HMRC new powers, the government announced a new Wealthy Plan to crack down on mega-rich tax avoidance. This is one of the clearest areas where the government deserves credit.

For too long, HMRC has lacked the capacity, expertise and data needed to properly understand the tax affairs of the very wealthiest individuals. While ordinary workers have tax deducted automatically through PAYE, wealthy individuals often generate income through complex webs of companies, trusts, partnerships and offshore structures. Since the disbandment of the “High Net Worth Individuals Unit”— that used to deal specifically with this always well-resourced and often slippery group, responsible for a massively disproportionate share of dodged taxes— we have campaigned for its restoration. The terminology and structure here is different, but these announcements amount to something pretty close. 

Dedicated compliance managers will be assigned to every UK-connected billionaire, expertise in trusts, inheritance tax, family offices and offshore structures will be expanded, and improvements will be made to data collection. Previously it had admitted they did not know how many such billionaires there were. There are also several long-term wins hidden in the details. HMRC will begin publishing an offshore tax gap estimate (a long running issue), improve measurement of the wealthy tax gap, make greater use of international information sharing, and expand third-party reporting. These are all reforms we support, that’s because they lay critical foundations for future tax reform. It is difficult to tax extreme wealth effectively if the government does not know where that wealth is held. Better information and enforcement make future reforms, such as a Wealth Tax, substantially more achievable.

However, progress remains too slow. A £60 billion tax gap cannot be closed by a relatively modest increase in staffing alone. Strong and effective resources and processes are essential. And dedicated attention to High Net Worth individuals should also be broader than just the UK’s roughly 150 billionaires. Those with tens, and hundreds of millions, also require special attention as they can often access the same high end schemes, and would need to have their wealth mapped and understood to introduce our preferred annual Wealth Tax.The government should go further in investing substantially more resources in compliance work, and continuing specialist recruitment. Especially as currently HMRC’s compliance department returns £22 for every £1. Investment should continue until this return is saturated. 

Verdict: One of the strongest measures in the Budget. Not sufficient on its own, but a genuine step towards a fairer tax system.

3. A tax on the banks

The government has announced a temporary increase in the Bank Corporation Tax Surcharge from 3% to 6% for fifteen months, expected to raise £1.5 billion in that time. This is an acknowledgment that banks have enjoyed enormous windfall profits in recent years. Higher interest rates have dramatically increased margins and profits across the banking sector, while households and businesses have absorbed rising borrowing costs. The problem is that the measure is both too modest and temporary. A short-lived reversal of a surcharge cut imposed by the Tories leaving untouched the much larger profits accumulated throughout the banking sector is hardly an ‘end to neoliberalism’. As a result, billions of pounds that could support struggling households and public services remain untaxed. 

If the government accepts that extraordinary profits should face extraordinary taxation, then it should apply the same principle used for oil and gas companies and introduce a genuine bank windfall tax. A 38% levy on profits swollen by higher interest rates, matching the rate imposed on profiteering oil and gas giants in 2022, would raise £19 billion a year— that’s significant money that could be used to provide targeted cost of living support and invest in making the country’s economy and communities more resilient to future shocks. 

When times were bad, made so by the banks’ own reckless behaviour, the public footed the bill, bailing out the banks to the tune of  £137 billion in loans and capital, in 2008. This bailout package is still responsible for around £33 billion of national debt. Now, as they make bumper profits from higher interest rates while households struggle with soaring mortgages, rising rents and mounting debt, we’re told once again that contribution only flows one way.

Verdict: Better than nothing, but falls far short of making the banks pay their fair share.

4. Business Rates

The government has increased business rates relief for pubs, social clubs and live music venues to 35%, costing £160m in its first full year. They have also announced broader support for hospitality and retail businesses, at a cost £315m in its first full year. This has been paired with new formulations to ensure a greater retention of revenues raised by local authorities and mayors. All business rates will be retained locally by the end of the decade, with mayors to keep 20% of revenue from next year. Greater devolution of spending powers is positive in principle, but local leaders can only succeed if the underlying funding settlement is adequate.

These measures will provide much-needed breathing room for parts of the high street that have struggled through inflation, changing consumer habits and the growth of online retail. Yet once again, the government has chosen patchwork fixes rather than structural reform. Business rates remain one of the most widely criticised taxes in the UK. They create sharp cliff edges, discourage investment, and often place disproportionate pressure on bricks-and-mortar businesses while multinational digital platforms enjoy significant advantages. 

A fairer system would replace the current framework with a proportional property tax or land value tax, creating a smoother and more economically rational system. Reform should also sit alongside stronger taxation of multinational corporations and digital giants to ensure high streets are not competing against companies able to shift profits offshore.

Verdict: Helpful relief for struggling businesses, but no solution to the deeper problems facing town centres and local economies.

5. Taxes on Wealth

The Budget raises tax rates on income from property and savings by 2%. From 2027 to 2028, the basic rate of income tax from property and savings will be 24%, the property higher rate will be 44%, and the additional rate will be 49%, raising nearly £1 billion a year by the end of the parliament. Although this income will remain exempt from National insurance. 

These increases are welcome. For decades, the tax system has treated many forms of wealth-derived income more favourably than earnings from work. Bringing these rates closer together is both fair and economically sensible. It will also deliver an additional £1 billion to public funds. Unfortunately, the government simultaneously undermines that progress through new and continued tax breaks elsewhere.

The new 10% Capital Gains Tax rate for founders and investors at a cost of £260million by the end of this parliament, described by Helen Miller (Director of the Institute of Fiscal Studies) as ‘bonkers’, is particularly difficult to justify. It is essentially a large tax giveaway for the wealthy owners of a tiny set of often unsustainably fast-growing companies. Evidence consistently suggests access to finance, infrastructure and workforce skills are far more important drivers of growth than generous tax treatment when assets are sold. 

Similarly, although restricting Business Asset Disposal Relief is a positive step, the government’s refusal to abolish it entirely leaves a costly and poorly targeted relief intact. The government has announced it is lowering the threshold for eligibility from £1m to £500,000, raising £255m a year by the end of the parliament. Business Asset Disposal Relief has been described as the ‘UK’s worst tax break’ as it is a poorly targeted giveaway that allows for well off people to avoid paying their fair share.

The broader problem is that the Budget continues tinkering around the edges of Capital Gains Tax when comprehensive reform is needed— and was called for by swathes of Labour MPs, including the Defence Minister, Growth and Tribune groups. And once upon a time ( a few months ago before he was PM) by Burnham himself. Equalising Capital Gains Tax rates with income tax, ending the death uplift and introducing a settling-up charge would create a fairer system, reduce economic distortions, encourage growth, investment and genuine risk taking and raise around £19.7 billion annually. That is enough revenue to fund a National Care Service while still improving the neutrality and efficiency of the tax system.

Verdict: Positive movement towards taxing wealth more fairly, but accompanied by regressive, unnecessary giveaways that weaken the overall package.

6. Corporation taxes tweaked, but not asked to pay fair share

The government has announced reforms to the taxation of multinational companies’ foreign branches and measures designed to reduce certain forms of profit shifting, which is expected to raise £450m a year by the end of the parliament. It will also make online marketplaces responsible for collecting VAT owed by sellers using their platforms. Any effort to tackle multinational tax avoidance is welcome. However, the scale of the government’s ambition remains strikingly small compared to the scale of the problem.

The UK continues to play a central role in fuelling  global tax abuse, predominantly through its Overseas Territories and Crown Dependencies, and the City of London. Every year billions of pounds are shifted out of the tax base through opaque corporate structures and offshore jurisdictions. The government has once again declined to introduce Public Country-by-Country Reporting, despite growing international momentum behind transparency reforms. Requiring multinational corporations to publicly disclose where they make profits and where they pay tax would make tax avoidance substantially harder and could raise around £4 billion annually.

Similarly, there has been no meaningful strengthening of the Digital Services Tax— which Donald Trump continues to threaten— despite continuing concerns about large technology firms generating vast revenues while contributing relatively modest tax receipts.

Verdict: Useful technical reforms, but nowhere near the scale required to tackle corporate tax avoidance properly.

7. Uplifts to pensions, pay & worker’s rights

The state pension will rise by 3.9% under the triple lock, alongside a new tax-free allowance ensuring pensioners receiving only the full state pension will not pay income tax. The minimum wage will also rise by 3.9%, carers will benefit from a new taper in Carer’s Allowance, and parental pay rights will be extended to self-employed fathers and parents in same-sex couples

Given rising living costs, in-work poverty and persistent pensioner poverty, these measures are clearly welcome. Protecting pension incomes remains important, particularly for people who rely on the state pension as their primary source of support. The reform to Carer’s Allowance is particularly significant. Under the previous system, carers could lose all support by earning slightly above the threshold. Introducing a taper removes one of the most punitive cliff edges in the welfare system.

Nevertheless, these policies only partially address the underlying challenges facing ordinary people. Wage growth remains fragile, public services remain under enormous pressure, and large numbers of people continue to face insecure work and rising living costs. Extremely wealthy individuals continue to benefit from a range of favourable tax treatments that remain untouched. 

The government should recognise that improving living standards requires more than tiny income uplifts for the poorest. Sustained investment in health, education, transport and care services is equally important for economic security. That means tapping into the tens of billions left untaxed from wealth and unearned income rather than relying primarily on taxes paid by working people.

Verdict: Practical improvements that make life fairer, but limited in scale.

8. Housing and Homelessness

The government has announced £1 billion for social housing alongside £450 million to help end rough sleeping and support homelessness services. These are among the most positive and ambitious spending commitments in the Budget.

Britain’s housing crisis is one of the clearest drivers of poverty, inequality and economic insecurity. Decades of underinvestment in social housing have driven up rents, housing benefit costs and homelessness. The additional funding represents progress, but remains small relative to the scale of the challenge. Delivering genuinely affordable homes at the scale required will require sustained investment over many years.

There is also a missed opportunity to think more fundamentally about taxation and property wealth. Britain’s property tax system remains highly outdated and regressive. Replacing Council Tax and Stamp Duty with a proportional property tax would make the system fairer, improve housing market efficiency, and raise additional revenue that could be invested in housing and local services.

Verdict: One of the Budget’s strongest spending commitments, but only a first step towards enabling Burnham’s important plan to end homelessness and resolve the housing crisis.

Overall Assessment

This Budget contains plenty of activity but little transformation, and is a drop in the ocean of what’s needed to address the challenges facing this country. There are welcome steps on HMRC enforcement, minor movement towards taxing wealth more fairly, additional support with living costs, and modest investments in housing and social security. But the government continues to avoid the larger structural reforms that would fundamentally reshape the tax system and provide the resources needed to rebuild public services. Which leaves us wondering if this was a Budget more for the bond markets than ordinary people. 

As the sixth richest country in the world, the UK’s challenges are clearly not the result of a lack of wealth. They stem from political choices about how wealth is taxed, who benefits from the tax system, and whose interests the government prioritises. The super-rich continue to enjoy tax rates that are often lower than those paid by working people. Multinational corporations still have significant opportunities to shift profits. Hundreds of costly reliefs and loopholes remain intact. Meanwhile, an affordability crisis rages on and public services continue to operate under immense pressure.

This Budget contains some steps in the right direction. But if the government is serious about tackling inequality, restoring public services and building long-term prosperity, it must be bolder.