Short answer: the Budget is the government's main yearly plan for tax and spending. The 2026 Budget focused on energy bills, support for some businesses and the public finances. The official forecasts expect growth of about 1% to 1.8% a year and inflation back at the 2% target by 2028 [1]. For an Economics student, it is a live case study in fiscal policy.
What is a Budget?
Fiscal policy is the use of government spending and taxation to influence the economy. The Budget is where the Chancellor of the Exchequer, the minister in charge of the public finances, sets it out. Alongside it, the Office for Budget Responsibility (OBR), the UK's independent fiscal watchdog, publishes forecasts for the economy [1].
The main measures
Energy bills
- A cut in VAT on electricity is extended to July 2027. The government expects it to take about £50 off the Ofgem price cap in April 2027 [1].
- A one-off Household Energy Payment of £100 per household from January 2027. It goes to homes in English council tax bands A to D: up to 20 million households, at a cost of £2.6 billion [1].
- Energy-intensive manufacturers get a 20% to 25% discount on electricity from April 2027 [1].
Taxes
- The extra Corporation Tax charged on banks rises from 3% to 6% for 15 months, from January 2027, to help pay for the energy support [1].
- The 5p cut in fuel duty, a tax on petrol and diesel, is extended to 1 July 2027 [1].
- Business rates, a tax on business property, are cut or frozen for many shops, pubs and leisure businesses [1].
Young people and work
- The National Living Wage and National Minimum Wage rise by 3.9% [1].
- A Jobs Guarantee for eligible 18 to 24 year olds on Universal Credit, and £100 million for local apprenticeship services [1]. Our NEETs explainer covers why.
The forecasts
| OBR forecast | 2026 | 2027 | 2028 | 2029 |
|---|---|---|---|---|
| Real GDP growth | 1.2% | 1.0% | 1.6% | 1.8% |
| CPI inflation | 3.1% | 3.4% | 2.1% | 2.1% |
Source: OBR forecasts as published in the Budget document [1]. Forecasts are estimates. They are often revised, so treat them as the official central view, not a promise.
The OBR expects inflation to peak at 3.8% in early 2027 before falling back to the 2% target by late 2028 [1].
Borrowing, debt and the fiscal rules
When the government spends more than it raises in tax, it borrows. Public sector net borrowing is forecast at 4.2% of GDP in 2026–27, falling to 1.8% by 2031–32 [1]. Public sector net debt, the total owed, stays at around 95% to 97% of GDP across the forecast [1].
The government has fiscal rules: targets it sets itself for borrowing and debt. The Budget says the main rule is met with £15 billion to spare in 2029–30. The gap between the forecast and the rule is called headroom [1]. Debt interest is costing about £14 billion a year more than in the March forecast [1].
Using this in an Economics exam
Imagine a question: "Evaluate the use of a cut in indirect taxes on energy to reduce the cost of living." Here is a short model chain.
Analysis (AO3): A cut in VAT on electricity lowers the price households pay, so their real incomes rise. Because demand for electricity is price inelastic, households keep buying a similar amount. So most of the benefit shows up as lower bills, not higher use. The cut also lowers measured inflation directly, because energy is in the CPI basket.
Evaluation (AO4): The size of the effect is small: the government expects about £50 off the price cap [1]. A VAT cut also helps every household, including high-income ones, so it is poorly targeted. A payment limited to lower council tax bands, like the £100 Household Energy Payment, aims to help more precisely. Finally, the cut has an opportunity cost. The revenue must be raised elsewhere, here partly through a higher tax on banks [1].
Notice the structure: every step links with "so" or "because", the evaluation uses a real number, and it compares the policy with an alternative.
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Sources
- HM Treasury (2026). Budget 2026, HC 726, including OBR forecasts. Published 28 October 2026.