# A mañana Budget, as expected

_John Healey’s first Budget ducked the big decisions, taxed savers and landlords again and leaves the tax burden heading for a post-war record. The OBR forecast it rests on has inflation back at 2% while Bank Rate rises to 4.75%, which makes no sense to me._

Neil Woodford · 30 October 2026 · 9 min read

![John Healey MP](https://cdn.sanity.io/images/v3acfbvo/production/27a11542c136971f149c26e8e776a5f662253ce7-1774x887.jpg?w=1600&fit=max&auto=format)

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As expected, this was a relatively short Budget speech which ducked the really big issues confronting the government. As is so often the case these days, what it lacked in substance it more than made up for in political messaging and, rather like the Prime Minister’s and the Chancellor’s speeches at the party conference, I thought it was principally directed at the Labour backbenchers sitting behind Mr Healey rather than at the nation as a whole.

Fundamentally, the contents of the speech and the measures it contained reflected the tough economic reality this government faces, a product of the issues it inherited in part from its predecessor administrations and of those it has created for itself in its two and a half years in power.

_[Watch: The Budget was the topic of this week's Show — Britain Can Grow Its Way Out of This Budget](https://www.noisecancelling.co/the-show)_

The low point of the speech for me was Mr Healey’s dig at Liz Truss, whose 49-day rule ended four years ago, but that didn’t stop him suggesting she had “blown a black hole in the budget”. Given that the substantive measures in her mini-budget were all reversed within days of being announced, it seems ludicrous to me to suggest that the challenges of today can in any way be traced back to that brief period in October 2022. Far better, surely, would be an honest and tough appraisal of the reality this government faces, which it should acknowledge is in large part a product of the choices it has made. _(Neil in the margin: Kwasi Kwarteng’s statement of 23 September 2022. The abolition of the 45p rate was reversed on 3 October, and Jeremy Hunt scrapped almost all of the remaining measures on 17 October.)_

I do not intend in this analysis to pick over the many small measures and initiatives Mr Healey referred to, some of which I believe are a rehash of previous announcements, but will instead focus on the smaller number of more “substantive” issues.

## Energy: give with one hand

The first of these was the limited assistance he announced to insulate some, but not all, households from the further increases in energy bills which will take effect in January. The previously announced removal of VAT on electricity bills has been extended until July next year, and the standing charge on gas bills is being scrapped. _(Neil in the margin: The 0% rate on household electricity began on 1 October and now runs to July 2027.)_

There is a caveat with this second initiative, though. The Treasury says 60% of households will save about £45 a year, but the cost of the standing charge will instead be levied on the unit cost of gas, which of course means that households living in less well-insulated or larger homes will end up paying more, not less, as a result of this change. Households that use oil or electricity to heat and power their homes will see no help from it at all. _(Neil in the margin: Under Ofgem’s current price cap the average gas standing charge is 29.68p a day, about £108 a year.)_

In another give-with-one-hand, take-with-the-other idea, the government will take a green levy off energy bills but drop the bill into general taxation. _(Neil in the margin: The Gas Shipper Obligation, a planned charge on gas bills to fund hydrogen projects. The government will now pay for those projects itself.)_

**£100** — One-off Household Energy Payment for about 20 million homes in council tax bands A to D in England, costing £2.6bn

Finally, as expected, the additional tax on banks (the bank surcharge rises from 3% to 6% for 15 months) will be used to fund a £100 cash payment this winter for households in England in council tax bands A to D (that’s 20 million households). It is meant to soften the blow of the forecast [20% or so increase in the energy price cap](https://www.noisecancelling.co/read/a-real-tough-choice) that will take effect in January, which will equate to about £350–£400 more a year for a typical dual-fuel household. _(Neil in the margin: The surcharge is paid on bank profits above £100m on top of the 25% rate of corporation tax. The 6% rate runs from January 2027 to the end of March 2028.)_

## Savers and landlords, taxed again

The Chancellor also slipped in another two tax increases, which I nearly missed because they barely got a mention in the speech. There will be a further 2 percentage point increase in the tax on savings for basic, higher and additional rate taxpayers. So savings that have been accumulated from already-taxed income will be hit again.

Mr Healey also announced a 2 percentage point increase in the tax on income from property. These increases come on top of the 2 percentage point rises on income from savings and property already announced, which take effect in the new fiscal year, meaning that from April 2027 the tax on these two income streams will rise by 4 percentage points. According to the OBR, these increases will raise an additional £1bn from 2028-29.

## £874m for 4,793 people

Aside from a lot of hot air about what may happen over the next three years to the amount of locally raised taxes devolved authorities will be able to keep, the taxes they can levy on tourists, and some future promises on defence spending, fuel duty (frozen again) and ISAs, that was about it, apart from the rough sleeping announcement.

This caught my eye simply because of the sums involved relative to the numbers in this predicament. Mr Healey announced that an additional £432m would be provided to fund emergency accommodation and support, taking the full budget to £874m to the end of this parliament. In England, 4,793 people were sleeping rough on a single night a year ago. Assuming these are approximately the same people who will be sleeping rough in the months that follow, that equates to about £71,000 per person per year to solve this problem over the two and a half years remaining of this parliament, or £182,000 per rough sleeper for the whole period. _(Neil in the margin: The official snapshot for a single night in autumn 2025. The £432m comes on top of £442m committed in August.)_

Whilst thinking about this, a few questions came to mind:

1. Why wasn’t the pre-existing budget of £442m sufficient to end rough sleeping for those 4,793 people?

2. If £442m wasn’t enough, what will the extra £432m achieve?

3. Clearly this is a pressing social problem, but I can’t help wondering whether this is the rough sleeping equivalent of the £216m bat tunnel for HS2. Once again, it seems that when the public sector is spending other people’s money, common sense just goes out of the window. _(Neil in the margin: The Department for Transport told the Public Accounts Committee in 2025 that the stretch of HS2 around the Sheephouse Wood bat structure would cost £216m in today’s prices.)_

## A government in a vice of its own making

Before I come to the updated OBR forecasts which accompanied the statement and set the framework within which the Chancellor has to operate, I should summarise what I heard on Wednesday. Probably the best place to start is with this chart.

![The tax burden heads for a post-war record](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-manana-oct26-tax-burden-e96185baff52-light.png)

_The previous record was 37.2% of GDP in 1948-49. The OBR now expects the tax take to pass it in 2027-28, at 37.9%, and to keep rising to 38.6% by 2031-32._

What’s abundantly clear is that this government is completely deaf to the many warnings it has received from history, from the opposition but, most importantly, from those who have in the past advised this government and its leadership. Its reflex is to tax and tax again, oblivious to the damage inflicted on working people, the prudent, businesses, entrepreneurs and wealth creators. It seems neither to care nor to worry about the enormous and unprecedented tax burden it has created, and seems happy just to plough on hoping that the money tree keeps coughing up. This is both worrying and depressing.

As [Andy Haldane said](https://www.noisecancelling.co/read/if-the-cap-fits), this is a government which appears to be happy to tax and spend as previous socialist governments have done and, whilst it may have a better social media presence, it has, like its forebears, run out of money. It has clearly reached the limits of what it can borrow given its self-imposed, “cast-iron” fiscal constraints, and even it must acknowledge, as does the IMF, that further tax increases will harm the economy. And so it is trapped, hoist on its own petard, unable to do anything of substance unless and until it is prepared to grasp the spending cuts it should have addressed in this Budget. _(Neil in the margin: His words, on LBC in September: the market suspects “a traditional tax-and-spend socialist government with better TikTok videos”.)_

So, whilst the rhetoric is soaring, the reality is much more mundane. This government is in a vice of its own making and will remain there until the economy delivers the [much better growth](https://www.noisecancelling.co/read/still-not-fizzling-out) I am confident it will, and the tax windfall that will follow from that upside economic surprise.

## Eeyore contradicts itself

Which brings me to Eeyore, or the OBR as it is more regularly referred to. It has been working on its updated forecasts for weeks, and I spent a couple of hours on Wednesday afternoon going through its extensive [Economic and fiscal outlook – October 2026](https://obr.uk/efo/economic-and-fiscal-outlook-october-2026/). At 200 pages it is very long, and it is full of interesting material, much of which I disagree with. I haven’t had the time to read it thoroughly or to digest all of its output, but on first pass I did detect what I think is a glaring inconsistency, which I believe is once again the product of its [reliance on futures markets](https://www.noisecancelling.co/read/when-all-you-have-is-a-hammer) to shape its conditioning assumptions.

Very briefly, one of the most important changes from its March forecast concerns its updated base rate and gilt yield expectations, set against its newly updated inflation prediction.

In summary, the OBR now believes that inflation will remain elevated for longer because of higher energy prices, but will still fall throughout 2027 and land at 2% early in 2028. So far, so relatively uncontroversial. But because it then uses market-implied rates, it now believes, in its latest forecast, that base rates will be higher over the period than it forecast back in March. Base rates rise to 4.5% by mid-2027 (in its fiscal forecast), then rise even further to reach 4.75% by 2028 and remain there until the end of the forecast period. _(Neil in the margin: The OBR’s economy forecast is conditioned on Bank Rate reaching just over 4¼% by mid-2027 and just over 4½% by the end of the forecast. In the fiscal forecast, finalised later, it is a further ¼ point higher on average.)_

![The OBR now assumes a higher Bank Rate than in March](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-manana-oct26-bank-rate-57b8a87fcc03-light.png)

_In March the OBR had Bank Rate falling to about 3.3% this year before edging back towards 4%. Its October fiscal forecast peaks at about 4.85% in 2028._

**4.0%** — Bank Rate the OBR now assumes on average across 2026 and 2027, against 3.4% in its March forecast

The OBR has also updated its gilt yield forecast, another market-implied conditioning assumption, and that shows higher yields across the maturity spectrum than it expected in March.

![Gilt yields are higher at every maturity than in March](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-manana-oct26-gilt-yields-4b6e2fe525d1-light.png)

_The biggest change is at the short end. The one-year gilt yield in the OBR’s fiscal forecast is 4.4%, against 3.5% in March._

The glaring inconsistency I see here is most obvious in the forecasts for inflation and base rates. Below is the OBR’s updated inflation forecast. Whilst clearly higher than in March, as I’ve already said, it still has inflation returning to its 2% target at the start of 2028, having fallen from a quarterly peak of 3.8% in early 2027. It then remains static at 2% for the remainder of the forecast period.

![The OBR still has inflation back at 2% by 2028](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-manana-oct26-cpi-a507baf9811f-light.png)

_These are annual averages. On a quarterly basis the OBR has inflation peaking at 3.8% in early 2027._

However, albeit that the OBR talks about considerable uncertainty with respect to its inflation forecast, I cannot see how inflation falling to 2% by the start of 2028 is at all consistent with base rates increasing through 2027 and reaching 4.75% by the start of 2028. This is quite simply arrant nonsense. And if the OBR’s base rate forecast cannot be correlated with its inflation numbers, then [neither can its gilt yield expectations](https://www.noisecancelling.co/read/seasonal-stupidity-but-dont-panic).

I am really struggling to understand how this gets through the sense-check filter at the OBR, or even at the Treasury. Frankly, it’s just economically illiterate.

## Productivity: nowhere near the right number

Although not a glaring inconsistency, I have spotted another important forecast in the document which I think once again does not stand up to scrutiny, and that’s its productivity expectation. I need to spend a bit more time on the detail and to read through this part of the report again, but it appears that the OBR’s very bearish growth expectation for 2027 is in part driven by its very weak forecast for productivity growth next year, which it sees falling to a miserly 0.7%. It then has productivity growth rising steadily to a heady 1.1% by 2031. _(Neil in the margin: The OBR puts the slowdown in trend productivity growth largely down to the spike in energy prices.)_

**0.7%** — The OBR’s forecast for trend productivity growth in 2027, rising to 1.1% by 2031

I am extremely confident that this fundamentally important number is very wrong. Indeed, I am confident it’s nowhere near the right number. Given what’s happening to output in the economy (well ahead of the OBR’s forecast) and to the labour market, combined with the rapidly growing deployment of AI across service-based industries, I am confident that productivity growth is likely to be above 1.5% in 2027, given the trend that appears to have been established since mid-2024 and which may well be strengthening.

![All the Productivity We Cannot See](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.prodmyth.c1-oph-lfs-vs-rti-25cd1f2f896f-light.png)

_The two series told broadly the same story until mid-2020, then parted company. The gap at Q2 2026 – 104.6 against 102.2 – is the productivity the survey couldn't see._

I have recently written [a research piece](https://www.noisecancelling.co/read/the-great-uk-productivity-myth) about what I think is happening here.

_Neil on the productivity the surveys couldn’t see:_ [The great UK productivity myth](https://www.noisecancelling.co/read/the-great-uk-productivity-myth) — The ONS now admits its own labour survey understated Britain's productivity by half. The full story: how the establishment got it wrong, what it means for interest rates and tax – and the dated record of every time we said so.

## Trapped until growth arrives

This was indeed a mañana Budget, delivered by a Chancellor who is fiscally trapped by the legacy he was left by Rachel Reeves and by the policy constraints imposed by his political priorities. He will remain trapped by these same factors until the economy delivers the fiscal flexibility he is incapable of manufacturing for himself and his leader. 

Until that time, this government’s big agenda items will remain unfulfilled, and we should all become accustomed to short Budget speeches filled with insubstantial tinkering.