The UK cuts energy bills, taxes banks and boosts defense in high-stakes budget

The U.K.'s finance minister John Healey delivered his first fiscal budget on Wednesday, announcing funding for defense, AI initiatives and measures designed to ease cost-of-living pressures.

The Autumn Budget included dozens of measures aimed largely at easing rising costs for Britain's population, but Healey was careful not to risk the ire of markets, which responded broadly positively to his plans.

As a net energy importer, the U.K. is vulnerable to external energy shocks.

Inflation has risen sharply this year, with surging fuel costs driving the annual inflation rate to 3.5% in September. Markets expect the Bank of England to hike interest rates next month, while government borrowing costs have risen sharply this year.

The U.K. government, led by Prime Minister Andy Burnham, had promised to alleviate economic pressures ahead of the budget.

On Wednesday, Healey said he would deliver "breathing space" for families, saying the country needs "radical change on energy," and citing the inflationary impact of the U.S.-Iran war — a conflict he said "we did not want."

His measures included the removal of standing charges on household gas heating bills, the extension of a tax break on electricity for millions of households through July 2027, and £100 ($133) checks for those living in the four lowest local housing tax bands. This will cost £2.6 billion.

Healey said tariffs would be removed on over 100 grocery products, a policy announced before the budget was officially unveiled. Small business relief from business rates — a tax on commercial premises — would be extended to include more companies in the hospitality, retail and leisure sectors. Other measures included £15 million to provide books for children, funding aimed at reducing homelessness and support for people to purchase their first home.

The U.K.'s minimum wage will rise by 3.9%, while a planned cut to tax-free savings thresholds was canceled.

But Healey also pledged to bring down the welfare bill, pointing to reforms to pensions and sickness benefits.

But he said he would not "write off a million young people [or] see disabled people suffer the indignities of a system that has been found 'not fit for purpose.'"

The U.K.'s welfare bill, which reached 10.7% of UK GDP in 2024/25, has been a contentious issue in recent years. Previous finance minister Rachel Reeves watered down her own plans to cut welfare spending after a rebellion from lawmakers within her party.

Healey also announced investments in developing — and regulating — the U.K.'s artificial intelligence industry.