A Budget to protect, not propel UK growth. The Chancellor John Healey's first Budget lands on 28 October with very little room to move. Expect targeted measures rather than sweeping reform: a Budget that protects existing investment more than it propels the next wave of growth. Here is what we anticipate, and what it means for you and your business.

Key Budget predictions at a glance

• Main rates stay put. Income tax, employee NICs, corporation tax and VAT rate increases are all ruled out.
• Capital taxes are the pressure point. Capital gains tax could be the one to watch.
• The freeze goes on. Thresholds stay frozen. Targeted help for pensioners is more likely than a wider fix.
• HMRC sees more. Expect an e-invoicing roadmap and more compliance resource.
• Sector support is targeted. Help for energy-intensive industry and protection for defence, not broad giveaways.
• Confidence is the real test. If markets trust the plan, lower borrowing costs could do as much as any tax measure.

The economic outlook for the Autumn Budget 2026

The big economic theme this year has been resilience. Despite war in Iran, surging energy prices, higher borrowing costs and yet another new Prime Minister, the economy has continued to slowly grow.

But that resilience won’t make life any easier for the Chancellor John Healey at his first Budget. Higher gilt yields and inflation may have essentially halved the £23.6bn of headroom he inherited only a few months ago. Ten-year borrowing costs are now around 5.5%, while 30-year yields have briefly breached 6% – levels that leave little room for manoeuvre. However, a hit is not the same as a hole. If headroom remains above £10bn, the Chancellor may decide that a smaller fiscal cushion is a price worth paying to avoid another big tax raid. Indeed, the Treasury is reportedly considering deliberately running with a smaller buffer.

That would be defensible: fiscal headroom exists to absorb unexpected shocks, and few shocks are more unexpected than a war.

But a thin cushion means the fiscal position could deteriorate further over the winter, turning a manageable squeeze into a genuine hole. And with the major tax levers already politically off limits, the Chancellor faces an increasingly familiar problem: the tax smorgasbord is running out of dishes.

Expect smaller measures targeting capital, and industry-specific taxes, with much of the money recycled into tax cuts or spending.

Limited room for manoeuvre

The Prime Minister, Andy Burnham, has committed to maintaining the manifesto pledges of the Starmer government on taxation. This removes the main levers available for raising tax revenue. Increases in the main rates of income tax, employees’ National Insurance Contributions (NIC), corporation tax or VAT have all been ruled out.

The promises protect headline rates, not the entire tax base. Thresholds can remain frozen, allowances and reliefs can be restricted, and the rules determining what is taxed can be widened. Room for manoeuvre is narrow, but Healey does have some options.

Could windfall taxes help to restore headroom?

The energy profits levy (EPL), originally introduced in 2022, at a time of very high energy prices, is currently intended to run until March 2030. Recent oil price increases due to events in the Middle East may support EPL receipts in the short term, but this does not resolve the structural criticism of the levy.

The rate and its treatment of exploration, development and decommissioning costs have been linked to weakening investment and production. Higher prices may temporarily increase receipts, but the North Sea is unlikely to give the Chancellor a dependable source of meaningful revenue.

On the other hand, high profits in the banking industry as interest rates rise have attracted attention. The Chancellor’s recent meetings with bank leaders have been noted and assumptions made.

The banks argue that the industry is already subject to higher taxes in the UK than in comparative regimes and that an increase in bank taxes would only contribute to the UK’s lack of competitiveness as a financial centre. Banking may look politically attractive as a source of revenue, but an increase in the industry's taxation could conflict with the growth agenda.

Capital gains tax: where could the Chancellor go next?

Changes to capital gains tax (CGT) are an obvious target for raising additional tax. It is more palatable to much of the electorate and fits the PM’s preference for fiscal policy to encourage labour and tax assets. Balanced against that, however, is the challenge of how to raise more money from CGT.

Data from HMRC shows an expected decrease in CGT receipts as the rate increases. Not only can taxpayers potentially decide to hold assets, rather than sell, but a smaller gap between income and capital taxes can also disincentivise entrepreneurial behaviours which would support growth in the economy.

A more coherent reform would not simply raise the rate. It could combine higher rates with relief for inflationary gains. A package of reforms would undoubtedly be more complex, but could address some of the distortions that make a standalone rate rise unreliable as a revenue raiser.

One option available to the Chancellor could be the removal of the CGT uplift on death. Beneficiaries could then inherit the deceased’s original cost rather than resetting the asset to market value. Such a change will undoubtedly lead to accusations of double taxation on death due to the interaction with inheritance tax but is unlikely to dent political capital.

Burnham has signalled that he may be willing to revisit the cap on agricultural and business property reliefs presided over by Rachel Reeves. Any changes which increase CGT receipts could provide headroom to do so. However, even if he is willing to give it further consideration, it’s unclear whether this would be a priority for this Budget, or part of wider capital taxes reform at a later date.

The recent consultation on ‘Modernising the taxation of distributions and repayments of capital’ could give the Chancellor another route. Proposed reforms could subject more shareholder transactions, such as capital reductions, to income tax, rather than the current CGT treatment. But the Budget may provide only a response or direction of travel, rather than any firm announcements.

Frozen tax thresholds and cliff edges

Burnham has made it clear that he has heard the messages that the freezing of tax thresholds (up to 2031 in Reeves’ last Budget), has had a major impact. Rising wages have seen more and more people subjected to higher rate income tax, or basic rate tax for the first time. This is a challenge for the Chancellor as the cost of unfreezing earlier than planned is significant and his options for funding it limited.

The cliff edge at £100k which, once breached, has wide ranging implications, from a marginal rate of income tax of up to 60% (67.5% for Scottish taxpayers) to the loss of free childcare, leaving people earning slightly over the threshold significantly worse off than those just below the threshold (or couples, individually earning below £100k but whose combined earnings reach these amounts).

Removing this cliff edge is complex, costly and politically sensitive. There is pressure to address fiscal drag and the cliff edge but wholesale action looks unaffordable. It would be surprising if the Chancellor tackled the issue in this Budget, but he might commit to do so in the longer term. Targeted intervention for particular groups, such as state pensioners, looks more plausible.

A targeted budget now, bigger reform later

Burnham has made clear that the short run-up to the Budget was intentional, one of the aims being to reduce the prolonged uncertainty (and leaks) which characterised the pre-budget period last year. The result is that there have been very few clues as to what to expect in this year’s Budget.

Can reindustrialisation deliver ‘growth in every postcode’?

The government has framed its policies under the umbrella of a ‘new age of industrialisation’, within the broader framework of ‘growth in every postcode’.

Support for investment could depend upon where a business invests, as much as what it invests in. We could see a greater role for geographically targeted incentives, alongside regional redistribution of income tax revenues. Whilst this could present a clear opportunity, businesses will need to carefully weigh the impact of tax incentives alongside other commercial needs.

What about hospitality and the high street?

Healey has been at pains to show that he is listening to businesses, and has heard their calls for certainty and stability, as well as their frustration at the rising costs of employment and the impact on growth.

Could we see the government seek to moderate the next increase in the National Minimum Wage? This could offer support to retail and hospitality businesses who employ a high number of minimum wage workers. However, it would be difficult to balance such a move against the commitment to improving living standards for the lowest earners.

The hospitality sector has mounted a high-profile campaign for a reduced 10% VAT rate. The PM has supported such initiatives in the past, but a broad cut in the rate could be costly for the government and may be difficult to align support to the businesses that really need it.

What does this mean for property taxes and stamp duty?

Burnham has criticised the regressive nature of council tax. He has also previously supported fundamental review and reformed property taxation, which could mean reform or replacement of stamp duty land tax (SDLT). What is clear is that he has also effectively ruled this out for the 2026 Budget.

The tax gap, digitalisation and HMRC visibility

The way HMRC administers tax is changing, and the Budget could accelerate that shift. HMRC wants more data, earlier reporting and greater visibility of business transactions. E-invoicing, international transaction reporting and wider corporate reporting all point in the same direction.

Greater transparency can improve accuracy and, if implemented well, technology can reduce manual processing and strengthen financial controls for businesses. But there is a cost. Businesses already struggling for finance and tax resource may have to invest significantly in systems, data and governance to operate in a much more transparent tax environment.

Healey may have relatively few tax levers available, but better information and greater visibility will enable HMRC to target its resources more precisely in its efforts to reduce the tax gap.

This Budget could increase the pace of this change in relationships between taxpayers and HMRC: more transactional data, reported earlier and in formats that allow HMRC to spot anomalies and intervene more quickly.

For businesses, tax governance, data quality and systems readiness are becoming tax issues in their own right.

The real dilemma: balancing the books without damaging growth

The manifesto pledges, combined with the tax rises of the last two budgets and the current state of the economy, don’t leave Healey with a lot of options for this Budget.

Additionally, the Prime Minister has been clear that his government is going to take a considered and long-term approach to the big-ticket items, such as social care and how to fund it.

Alongside announcing additional compliance resources, the Budget is likely to advance the government’s digital tax infrastructure, including a roadmap for the introduction of e-invoicing.

The package may combine selective reliefs with targeted revenue raisers, early steps towards longer-term capital-tax reform and measures giving HMRC greater visibility over transactions. The individual changes may look modest. Collectively, they could materially affect business owners and the systems through which businesses report and pay tax.

Autumn Budget 2026: industry predictions

Bring down the cost of energy

Energy costs are the number one issue for manufacturers. The Chancellor may want to remove the policy levies on industry electricity bills, but fiscal constraints make broad support difficult. We therefore expect a more limited package, targeted at the most energy-intensive industries to be announced.

Another potential quick win could be expanding the British Industrial Competitiveness Scheme (BICS) to ensure more manufacturers qualify for much-needed relief from high energy prices.

Budget looks set to protect defence programmes, not accelerate them

We expect the Government to protect the existing £298bn Defence Investment Plan (DIP) and close the £5bn defence equipment funding gap. That would not compensate fully for the absence of a pathway to 3%, but it would protect near-term programmes, contract flow and planned investment.

Fiscal pressures could delay a roadmap to 3% defence spending

The Chancellor has ruled out committing to defence spending of 3% of GDP in the Budget and will address this in next year’s Spending Review. However, we expect a clear roadmap to deliver some strategic direction.

Without tax increases or additional borrowing, welfare reform could become one of the few remaining options for creating fiscal headroom. Holding it broadly flat, rather than making any deep cuts, could create much of the headroom needed for a 0.3 percentage-point increase. This would be a difficult decision to make in the short term, but the fiscal reality is hard to avoid, and the commitment could accelerate investment, boost business confidence and unlock much-needed growth across the defence supply chain.

The government is expected to protect the DIP and close the defence equipment funding gap. This will drive demand for essential infrastructure, requiring significant construction expertise. This pipeline of defence infrastructure will improve sentiment, but clarity is needed around allocation of spend to infrastructure with concerns remaining around timescales for mobilisation and only 'shovel ready' programmes starting in 2027.

As the government aims to accelerate housing demand, and with new incentives to address grid capabilities, an increased pipeline in 2028/29 across all sectors could make delivery of major projects impossible.

Viability weighs heavy

The industry continues to face several ongoing challenges including planning delays, supply chain fragmentation and capacity, with skills shortage and delivery capabilities bringing viability constraints. Contracts awarded in the short term may not be viable in later years if mobilisation is prolonged and build costs and labour constraints continue to rise.

SDLT is off the table in this Budget, but changes to CGT could impact the property market and buy-to-rent and institutional investment – making housebuilding even less viable.

Housebuilders have experienced prolonged demand suppression, planning constraints and more red tape and regulation which are delaying developers’ funding for affordable housing. This has driven alternative strategic partnerships and delayed delivery of new homes.

Housebuilders crave demand

The ‘Your First Home’ support for first-time buyers acknowledges planning reform alone will not deliver government housing ambitions. Sentiment has improved, but housebuilders will remain cautious about increasing starts until demand volumes can be predicted. This undoubtedly casts further uncertainty over whether government housing targets are achievable.

The market will be looking for clarity on eligibility criteria, regional price caps, funding commitments and whether support will be limited to new-build homes. Clarity is also needed around further investment in infrastructure to sustain higher levels of housing demand.

While demand has been suppressed and completions have fallen significantly, the biggest challenge remains the need for new homes and the lack of appetite of the housebuilders to increase build volumes making this a supply, not demand issue.

The new first time buyer’s incentive supports those who cannot rely on the ‘bank of mum and dad’ or self-fund deposits but government’s promises to stimulate demand through new incentives and funding do not address affordable mortgage products or the viability of sites due to increased build costs and regulation.

Devolution: theory versus reality

The market has long raised concerns over housing targets being regional, while major infrastructure such as transport is delivered under a separate agenda. Devolution will align infrastructure planning with housing development at regional level. This is positive, however if housing targets are set centrally, how does this devolve decision making?

Policy announcements look to stimulate demand and drive regional collaboration and decision making, but still don’t address the significant development viability challenges and red tape which delay delivery of a housing target that feels out of reach.

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