Chancellor John Healey has avoided headline increases in income tax, national insurance and VAT in his first Budget, instead targeting banks, adjusting pension tax allowances and offering selective relief to small businesses as Britain’s public finances come under mounting pressure.
The balancing act comes as government borrowing continues to weigh heavily on the economy. Official figures from the Office for National Statistics showed the UK borrowed £24.5bn in September 2026, pushing public debt above £3tn.
Rather than impose broad-based tax rises, Healey increased the bank corporation tax surcharge by three percentage points for 15 months from January. The levy, which sits on top of the 25 per cent corporation tax rate, comes after Barclays, HSBC, Lloyds and NatWest reported about £15bn in combined profits during the first half of the year.
But experts warned that raising revenue alone would not address the wider pressures on the public finances.
Dr Janet Bastiman, chief data scientist at Napier AI, said the government should focus not only on taxing banks but also on preventing illicit money from moving through the economy. She cited an estimate that £154.83bn was lost to money laundering in the UK last year, arguing that tackling financial crime should be treated as an economic priority.
Healey also introduced a £13,036 tax-free allowance for low-income pensioners, matching the new full state pension. The measure is expected to protect nearly one million pensioners from income tax, although those with additional private or workplace pension income could still face liabilities.
For accountants, the changes are likely to create an immediate demand for advice. Kenny MacAulay, chief executive of Acting Office, said businesses and individuals would need to understand how the new rules affected them, adding that AI could help firms identify affected clients and explain changes more efficiently.
Small businesses received some relief through an increase in the business rates relief threshold for hospitality and leisure companies from £12,000 to £18,000, taking a reported 70,000 businesses out of paying business rates. But the national living wage will rise by nearly 4 per cent, from £12.71 to £13.20 an hour, increasing employers’ staffing costs.
Sachin Agrawal, UK managing director at Zoho, warned that smaller companies remained squeezed by economic uncertainty and rising operating pressures. He called for stronger investment and regulatory support, including tax incentives to encourage small businesses to adopt AI and train employees.
Healey’s approach seeks to avoid the political cost of sweeping tax increases while raising money from selected sectors and shielding particular groups. Yet with borrowing above £3tn, the challenge remains whether targeted measures can provide lasting relief without leaving the underlying pressures on Britain’s finances unresolved.
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