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The new Chancellor John Healey announced a welcome £100 handout for up to 20 million households in his first Autumn Budget, offering some relief to those struggling with rising energy bills.
But will this and the other measures announced on 28 October, including a promise to protect the lowest-income pensioners from paying tax on their State Pension and tariffs removed from 100 food items, really make a meaningful difference to your finances? Frozen tax thresholds mean more people are being drawn into paying income tax or pushed into higher tax bands as wages rise, potentially wiping out any gains.
Here’s what the Budget means for your money.
Help with energy bills and food costs
The biggest rabbit out of the hat in this year’s Budget was the Chancellor’s announcement that 20m households in the UK in council tax bands A-D would receive a £100 payment directly into their bank accounts to help cover the cost of rising energy bills.
Funding will be allocated to devolved governments in Scotland, Wales and Northern Ireland to provide the same support to households there.
Prior to the Budget, the Chancellor announced plans to remove standing charges from gas bills for 23m households, although the change is not expected to take effect before 2027.
Standing charges are the fixed daily fees energy suppliers levy for providing gas, regardless of how much a household uses, and they currently stand at £108 a year. The government plans to implement the change by moving the gas standing charge costs onto the unit rate, which is the price you pay for each kilowatt-hour (kWh) of gas you use. The change is likely to mean that around 60% of households will pay an estimated average of £45 a year less, but 40% in the biggest properties will pay more.
Energy UK’s Chief Executive Dhara Vyas said: “Standing charges cover the fixed infrastructure and operational costs required to keep homes connected to the energy system, regardless of how much gas or electricity is consumed. These costs need to be recovered elsewhere, and as any change will create winners and losers, it needs to be introduced carefully. So it is critical the Government and Ofgem work closely with industry and consumer groups on implementation to avoid negative consequences.”
The Chancellor also said that its VAT cut on electricity bills, introduced in October, will be extended to July next year, rather than ending in April as previously planned.
The government has also confirmed the launch of a new Warm Homes Loan Scheme. Under the scheme, households can take out loans partially backed by the Treasury to pay for solar panels, batteries, heat pumps and other energy-efficient improvements. The Treasury says that installing a heat pump, battery and solar panels could help families save up to £550 a year on their energy bills.
Separately, the Chancellor said import tariffs on more than 100 food and drink items would be removed in a bid to ease pressure on household shopping bills. Goods affected include baked beans, gherkins, garlic, some plant-based drinks and chocolate-coated waffles, as well as certain sweets.
The changes are on top of tariff cuts introduced earlier this year on products including pasta, tuna and fruit juice. Together, the measures are expected to save households up to £21 a year on groceries. You can find other ways to reduce your food bills in our article 21 ways to save money on your food bills.
State Pension
The Chancellor confirmed that the State Pension will increase by 3.9% in the 2027/28 tax year, in line with the government’s triple lock guarantee. This links the annual rise in the State Pension to either earnings numbers for May–July, September’s Consumer Prices Index (CPI) measure of inflation, or a minimum of 2.5%, whichever is the highest.
The earnings growth figure was announced as 3.9%, putting it well above 2.5% and CPI inflation at 3.5%, which is why the State Pension will increase by this amount. Find out more about the pension triple lock and how it works in our article What is the pension triple lock?
This means that the full new State Pension for those who reached retirement age on or after 6 April 2016 will increase from £241.30 a week to around £250.70 a week next April, while the basic State Pension for people who retired before 6 April 2016 will rise to £192.10 a week, up from £184.90 a week. In both cases, the amount you’ll personally get is based on your National Insurance Contribution record.
The increase will take the full State Pension to over £13,000 annually, which is higher than the current £12,570 personal allowance. The personal allowance is the amount of income you can receive tax-free each year, and it has been frozen since April 2021. It is set to remain at this level until April 2031.
The Chancellor pledged to protect the lowest-income pensioners from paying income tax on their State Pension by introducing a new tax allowance. This will mean pensioners whose only retirement income is the full new State Pension can receive it tax-free.
Kate Smith, Head of Pensions at Aegon, said: “Protecting those who rely solely on the State Pension from paying income tax will be welcome news for some of the lowest-income pensioners. However, we are now in a position where we have division not only between those on the New and Old State Pension, but also between those pensioners who have managed to build up additional pension savings – however large or small – and those who have not.”
The Government has previously announced that the triple lock will change from 2030, effectively becoming a ‘double lock’, with the State Pension increasing in line with either inflation or 2.5%. However, the State Pension would be protected so that it still retains its value relative to earnings over time. You can read more about these changes in our article What will changes to the State Pension triple lock mean for you?
Private pensions
Although pension tax relief and tax-free cash escaped reform in this year’s Budget, there were no changes to the government’s plans to bring pensions into a person’s estate for inheritance tax purposes from 6 April 2027, as announced in the 2024 Autumn Budget.
The change is expected to boost the government’s tax revenue by £1.46 billion in 2029/30, and is likely to impact 8% of estates.
Neil Jones, tax and wealth planning specialist at Standard Life, said: “This is a significant shift in wealth and estate planning, particularly alongside frozen inheritance tax thresholds and rising asset values. Some families may need to revisit which assets they use in retirement and which they leave to loved ones.
“However, people should not rush into withdrawals to avoid a potential tax bill. Pensions remain a valuable, tax-efficient source of retirement income, and most estates will remain unaffected by inheritance tax. The priority is to understand individual circumstances and make considered decisions.”
You can find out more about forthcoming changes to IHT and pensions in our guides Inheritance tax and pensions: what’s changing in 2027 and 5 ways to beat pension Inheritance Tax Budget changes.
Another previously announced change to pensions is that from April 2029, the National Insurance exemption for pension contributions through salary sacrifice will be capped at £2,000 a year.
If your employer offers a salary sacrifice pension scheme, you can choose to give up part of your salary in exchange for your employer paying the same amount directly into your pension. As your salary is reduced before tax and National Insurance are calculated, you could pay less of both, potentially leaving you with:
- More take-home pay than if you made the same pension contribution through a standard workplace pension scheme.
- A bigger pension pot, particularly if your employer also adds some or all of the National Insurance savings it makes to your pension.
You can read more about the potential impact of forthcoming salary sacrifice changes in our article What could changes to salary sacrifice mean for your pension?
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ISAs and savings
The Chancellor announced in his Budget that the planned reduction in the Cash ISA allowance from £20,000 to £12,000 for under 65s will be scrapped.
The ISA limit for the current 2026/27 tax year stands at £20,000, which can be put into cash, stocks and shares or peer-to-peer lending via an innovative finance ISA. You get a new ISA allowance at the beginning of each new tax year starting on April 6, and it’s a case of use it or lose it. Any part of your allowance you haven’t used by the end of the tax year cannot get carried over into the next tax year.
From April 2027, the annual Cash ISA allowance for under-65s had been due to be cut sharply from £20,000 to £12,000, but this will no longer happen, which means that risk-averse savers of all ages can still put their full £20,000 allowance into Cash ISAs if they want to.
Alex Beavis, Interim Director of Banking at LHV Bank, said: “A welcome dose of common sense. Cash ISAs give people a straightforward, tax-efficient way to save for a house deposit, build a buffer, or plan ahead with confidence. Encouraging more people to invest is a sensible ambition, but saving and investing aren’t interchangeable: cash is the safety net for life’s unexpected bills, while investments build wealth over the longer term.”
You can find current best buy Cash ISA rates in our article Best cash ISA rates – which cash ISAs pay the most interest?
The Chancellor also announced the introduction of a new First Time Buyer ISA which will replace the Lifetime ISA, along with a new Your First Home Equity scheme which will enable first-time buyers to purchase a new build property with a 2.5% deposit.
Tax rate on savings and property income to rise
Non-ISA savers and landlords are both big losers in this year’s Budget. The rates of tax on non-ISA savings interest and on property income will rise by 4 percentage points from 6 April next year, Budget documents show, which is 2 percentage points higher than the rates previously announced.
That means that savings and property income that falls outside of the personal allowance will be taxed at 24%, 44% and 49% respectively for basic, higher and additional rate taxpayers, instead of the standard income tax rates of 20%, 40% and 45%.
According to tax and business advisory firm Blick Rothernberg, the increase in income tax payable on rental profits is likely to lead to an even greater exodus from the market, leading to reduced choice of homes to rent.
Richard Paddle, Director at Isio Wealth Planning, said: “A further two-percentage-point increase in tax on property and savings income from April 2027 will put further pressure on landlords and savers receiving taxable interest. Plans to introduce smaller, more frequent self-assessment payments from 2029 could help some taxpayers manage their liabilities, but will require others to rethink their cash-flow arrangements.”
You can find out more about the PSA and tax on savings interest in our guides What is the Personal Savings Allowance? and Are you paying unnecessary tax on your savings?
Income tax
There were no changes to income tax, but that doesn’t mean bills aren’t getting bigger, with latest HMRC data revealing that we paid £164.8 billion in income tax between April and September this year, up £11.2 billion compared to the same period last year.
The current income tax thresholds are £12,570 (basic rate), £50,270 (higher rate), and £125,140 (additional rate), and they have remained unchanged since 2021.
When tax allowances are frozen, this means that over time most people will end up paying more tax due to what is known as ‘fiscal drag’. Fiscal drag is the process by which people end up paying more tax when tax rates and thresholds are left unchanged, as they earn more and their assets rise in value.
Sarah Coles, head of personal finance at AJ Bell, said: “The cruel squeeze from frozen thresholds is extracting every last drop of potential tax. And with the freeze in income tax thresholds set to stay in place until 2031, the pain is far from over. In this environment, it’s worth revisiting every possible method of cutting your income tax bill. If you’re worried about tax on your earnings, especially if a pay rise has pushed you into a higher tax band, you can consider extra pension contributions, which will offer tax relief at your highest marginal rate.
“If you risk paying tax on savings interest, it’s worth considering a Cash ISA, where your savings can grow completely free of tax. Plus, if moving tax bands means a higher tax bill on your investments, then a Stocks and Shares ISA could be a sensible option.
“You can consider tax planning with the wider family. You can transfer assets between spouses, so you both take advantage of your pensions, ISA allowances and other annual allowances. Plus, if you’re on the verge of seeing your income drop into a lower tax band – such as on retirement – you could consider deferring income until after the change. You could, for example, save in fixed rate bonds that pay interest on maturity – after your retirement.”
Inheritance Tax
No changes to Inheritance Tax were announced by the Chancellor, although previously announced plans to make pensions part of people’s estates for inheritance tax purposes from 2027 have the potential to make many more people liable for the tax. HMRC raked in a record £936 million in inheritance tax in September 2026 alone, taking the total for the first six months of the 2026/27 financial year to £4.72 billion.
Neil Jones, Tax and Wealth Planning Specialist at Standard Life, comments: “September’s record inheritance tax receipts show just how much IHT is already contributing to the public finances. Monthly receipts fluctuate, but with frozen thresholds and rising asset values, the long-term trend is seeing more wealth pulled into the IHT net. And with pensions coming into scope of IHT from April 2027, the reach of the tax is set to expand further.
The current £325,000 Inheritance Tax threshold remains frozen for another two years, until April 2031.
If you’re concerned about inheritance tax, you may want to consider making the most of current gifting allowances, which haven’t been altered. For example, you can give away £3,000 worth of gifts each tax year without them being added to the value of your estate. If you don’t use this annual exemption one year, you can carry it forward to the next tax year.
As well as your £3,000 annual exemption, you can give as many £250 gifts per person as you want during the tax year, provided you haven’t used another exemption on the same person. Learn more in our article Six ways to reduce inheritance tax bills.
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Minimum wage to increase
The Chancellor unveiled plans for a 3.9% increase in the minimum wage for both older and younger workers, following concerns that higher pay costs are making it harder for young people to find jobs.
The national living wage for workers aged 21 and over is set to increase from £12.71 to approximately £13.20 an hour.
Meanwhile, the national minimum wage for 18 to 21-year-olds will rise from £10.85 to around £11.27 an hour. This marks a departure from the larger increases announced in the previous two Budgets, amid warnings that young workers are being priced out of the jobs market.
Carer’s Allowance ‘cliff edge’ to change
The current sharp cut-off in the earnings limit for people claiming Carer’s Allowance in England and Wales will be replaced with a taper system – but not until 2030, the Chancellor announced.
Currently, to qualify for Carer’s Allowance, you generally need to earn no more than £204 a week (in the 2026/27 tax year) after certain permitted deductions. If your earnings go even 1p over that limit, you can lose your entire £86.45 a week Carer’s Allowance payment, rather than just seeing it reduced gradually.
This means carers can end up financially worse off for working a few extra hours, accepting a pay rise or earning a little more in a particular week. Under the new system, which is expected to come into effect in 2030, a taper will be introduced, meaning Carer’s Allowance would gradually reduce by £1 for every £1 earned above the threshold, rather than stopping completely.
You may be able to claim Carer’s Allowance if you look after someone for more than 35 hours each week and the person you’re caring for gets certain benefits, such as the Personal Independence Payment, Disability Living Allowance or Attendance Allowance. Find out more and apply for Carer’s Allowance at GOV.UK.
Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, comments: “Reforming the earnings threshold for Carer’s Allowance will help reduce financial pressure and uncertainty for thousands of unpaid carers. Carer’s Allowance provides a vital safety net, but more support and reform is needed.
“Unpaid carers are still disproportionately likely to fall out of employment, with an average of around 1,500 people every day leaving work to care for loved ones, and one in five working carers worry that caring will affect their ability to work until their preferred retirement age. This leaves them at much greater risk of financial vulnerability in retirement.”
Fuel Duty and mileage rules
The temporary 5p-a-litre fuel duty cut has been extended until July 2027. It was previously due to finish at the end of 2026, giving drivers some continued relief from high petrol and diesel prices. However, Edmund King, AA president, said: “Delaying the fuel duty increase is a welcome ‘trick’, but no ‘treat’ for drivers. Over the past 24 hours, almost a thousand forecourts have cut petrol prices, yet just over two hundred have cut diesel prices to volatile wholesale costs. Now retailers know the lay of the land on fuel duty, where costs are coming down retailers need to pass them on as quickly as possible. We hope the regulator will be monitoring prices closely.”
The Chancellor has also announced changes to HMRC’s mileage rules due to take effect in April 2027, which should benefit millions of people who drive their own cars or vans for work. The Government plans to retain the current allowance of 55p per mile for the first 10,000 business miles, rather than letting it expire, and increase the rate for any additional miles from 25p to 35p. Ordinary journeys between home and work are not covered.
The Treasury estimates that the changes could deliver additional tax savings of £120 a year for someone driving 6,000 business miles, or £300 for someone covering 15,000 miles.
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