The Guardian·United Kingdom·Wednesday, October 28, 2026 at 11:50 AM UTC

Bank shares jump on reports budget bank tax will be ‘temporary and below 8%’ – business live

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Graeme Wearden

City experts are welcoming reports that chancellor John Healey will scrap plans to slash the annual cash Isa allowance from £20,000 to £12,000 a year.

According to the Financial Times, Healey had concluded that this is the wrong way to persuade people to invest more in stocks and shares.

The move had been announced by Healey’s predecessor, Rachel Reeves, in an attempt to encourage people to invest in UK companies.

It would have meant that from 6 April 2027, anyone under 65 would only have been allowed to save up to £12,000 in a cash ISA. Anything above that will have to move into a stocks and shares Isa.

Tom Selby, director of public policy at AJ Bell, has cheered the move, and criticised Reeves’s “calamitous reform agenda”, saying:

“Rachel Reeves’ ISA reforms were a car crash, lamented by most of the retail investment industry, who criticised the complexity they would add for little consumer benefit, and building societies, who warned they would increase mortgage costs. Given the Prime Minister’s main focus is on easing cost-of-living pressures, we shouldn’t be surprised the Cash ISA cut is set to be unceremoniously ditched.

“While the central aim of encouraging more people to invest for the long-term was the right one, the route Healey’s predecessor chose to achieve this was painfully convoluted, hardening the border between short-term saving and long-term investing and adding overwhelming complexity – not to mention a tax charge – into the system in the process.

Jo Harris, chief customer and operations officer at Quilter, points out that u-turns have costs:

“There is also a lesson here about how policy is made. The industry has already spent an inordinate amount of time and resource preparing its systems, products and customer communications for these changes.

That is time that could have been spent innovating and improving outcomes for customers. Policy inevitably changes, but announcing complex reforms and asking firms to prepare for them only to reverse course before they take effect is the worst kind of policymaking.”

Key events

My colleague Andrew Sparrow is live-blogging all the budget action today from Westminster, as excitement builds ahead of 12.30pm.

He sets the scene….

When Andy Burnham became PM, he signalled that he wanted to end 40 years of neoliberalism. Judging by all the briefing about what will be in the budget today, neoliberalism is probably safe for another year or so because Burnham and his chancellor, John Healey, have decided not to use this as a moment for big, transformative change, but to instead opt for a more low-risk, every-little-bit-helps fiscal statement.

There are radical elements in the Burnham agenda, but mostly they will have to wait for another day.

Here’s Andrew’s live-blog, which I’ll be peeling off to help with later….

Some UK bank shares have risen slightly this morning, even though John Healey is expected to hit them with higher taxes in the budget.

NatWest are up 0.5%, and Lloyds Banking Group are 0.44% higher, although Barclays are flat.

Dan Coatsworth, head of markets at AJ Bell, says:

“UK banking shares got a boost on reports that Chancellor John Healey will scrap plans to reduce the Cash ISA allowance from £20,000 to £12,000. Cash ISAs are an important funding source for banks and building societies, making the apparent U-turn welcome news for the sector.

Coatsworth also reports that bond investors will be hoping for “a dull as dishwater Budget”.

The public, though, will be hoping for help on the cost of living!

There’ll be a lot of talk about fiscal headroom today, especially if the chancellor surprises the City by not maintaining as much headroom as expected.

This relates to the UK’s two fiscal rules.

The Stability Rule. That day-to-day public spending must be fully covered by tax revenues, meaning the current budget should be in balance or surplus in three year’s time.
The Investment Rule. That public sector net financial liabilities (PSNFL), a broad measure of the national debt that includes financial assets, is falling in three year’s time.

Back in March, the Office for Budget Responsibility estimated the UK would hit the stability rule with headroom of £23.6bn.

The investment rule was on track too - PSNFL was predicted to be falling by 0.8% of GDP (equivalent to £27 billion) in 2029-30.

Economists predict both headroom measures would have shrunk since March, due to the jump in borrowing costs caused by the Iran war. So John Healey has to choose between trying to rebuild them - through tax rises or spending cuts - or accepting a smaller headroom.

The risk with a smaller headroom is that further economic shocks could wipe it out - leading to endless speculation about what measures might be needed to bring the rules back into line.

Banks and building societies, who offer cash Isas, are predictably relieved that the annual cash ISA allowance is expecte to now remain at £20,000.

Lawrence Chan, head of savings at Nottingham Building Society, says it would be “great news”:

It suggests that the government understands that many people value having a secure plan they can stick to and not just chasing the highest return. A Cash ISA is a familiar and straightforward way to build a deposit for a first home, keep money back for unexpected costs or simply feel more secure about the future.

“People should have the confidence to choose the saving or investment option that works for them based on their own circumstances and plans. Encouraging people to consider investing for the longer term matters but reducing the Cash ISA allowance would not have been the right way to do it. It would have made a trusted route to saving less useful for the people who rely on it.

“Cash savings and investments have different roles, and most people need both at different points in their lives. What they need from government is clarity, stability and enough time to make decisions with confidence. For building societies, members’ savings help fund mortgages for people buying homes in the communities we serve. Keeping the current allowance would protect a popular way to save while helping maintain the deposits that support lending, including for first-time buyers.”

Jason Hollands, managing director at online investment platform Bestinvest by Evelyn Partners (which is part of NatWest Group), agrees it will be “welcome news” for savers:

‘The Government had argued that the rationale for cutting the Cash ISA allowance was to steer more people to invest, rather than it being a revenue raising measure. Encouraging more people to invest is a worthy and welcome project but cutting the amount people can save in a Cash ISA seemed like a blunt instrument to try and achieve this. Further complications around flagged anti-circumvention measures for investment ISAs threatened to damage understanding of and trust in both products.

‘I suspect many of those who would have felt limited by the planned reduction to Cash ISA allowances for under 65s would simply have put their cash in taxable savings account instead, making them worse off.

UK government borrowing costs are rising this morning, as the budget looms, but it looks to be part of a global bond move.

The yield, or interest rate, on UK 10-year bonds is up almost three basis points (0.03 of a percentage point) to 5.367%.

Thirty-year gilt yields are up a similar amount to 5.769%. That still leaves them below the 28-year highs hit earlier this month.

A rise in bond yields could reflect anxiety over the budget…. but other countries’ borrowing costs are also rising, such as France, Germany and the US today.

That follows a rise in the oil price today, with Brent crude up 1.3% at $115.40 a barrel.

April LaRusse, co-head of global client portfolio management at BNY Investments, says:

“Markets are understandably sensitive to any sign that politicians may relax borrowing rules or increase unfunded spending commitments. The gilt market has weathered a variety of storms in recent months. Developments in the Middle East, rising inflation, and domestic political risk are all stoking fears over the potential for economic stagflation and the UK’s medium-term fiscal outlook.

“However, the gilt market has already moved substantially to price in these risks, with markets expecting significant rate increases by the Bank of England. Shorter-dated gilts will likely remain particularly sensitive to changes in energy prices, while the notable shortening of the average maturity of UK debt issuance over the past year provides a constructive supply backdrop for longer-dated gilts.

“Ultimately, the Budget is likely to be less about changing direction than buying time. A cautious package could steady the gilt market and ease immediate cost pressures, but it would leave the government’s larger ambitions, and the question of how to fund them, for another day. The can may be kicked down the road, but investors will remain focused on where it eventually lands.”

Scrapping Rachel Reeves’s controversial plans to cut the annual cash Isa allowance from £20,000 to £12,000 for under-65s is a shift towards encouraging “investment through education and engagement rather than restricting tax-free savings”.

So says Maike Currie, VP personal finance at PensionBee, who argues that a lower cash Isa limit would have penalised women, saying:

“Scrapping the planned cut to the Cash ISA allowance would be a welcome U-turn. Saving was never the problem; the challenge is giving people the confidence to take the next step into investing.

“We warned at the time that restricting Cash ISAs risked penalising the very people who need the most help building long-term wealth, women in particular. You don’t persuade people to eat more meat by rationing their vegetables.

“The proposed changes threatened to turn one of the simplest ideas in personal finance into a maze of restrictions, from taxing interest on cash held in Stocks and Shares ISAs to limiting transfers between different types of account. Simplicity is one of the ISA’s greatest strengths, and we should be protecting it, not chipping away at it.

“If the Government genuinely wants to turn Britain into a nation of investors, education, engagement and building confidence will achieve far more than tinkering and overcomplicating a well-understood savings vehicle.

Winston Ruddick, senior financial planner at financial services consultancy Broadstone, argues that protecting the £20,000 Cash ISA allowance is “welcome news for savers”.

Ruddick says reversing the planned cut to £12,000 will help people build tax-free savings without taking on the additional investment risk of putting money into the stock market:

“While encouraging more people to invest is a sensible ambition that could boost long-term returns and channel more capital into UK equities, restricting access to tax-efficient cash savings was always a blunt instrument to achieve this.

“Cash ISAs are a simple, accessible and widely understood savings product, often providing a first step towards building longer-term savings habits and financial security. They play a vital role in financial planning, particularly for those with shorter-term savings goals or a lower appetite for risk.

“The Government is right to focus on improving financial education and building confidence in investing, helping people make informed decisions about their financial futures.”

Not every City expert is welcoming the cash Isa u-turn!

Michael Healy, CEO of IG Consumer, argues it would be a mistake not to encourage people to invest in stocks and shares, rather than stashing savings in cash.

“The Chancellor has squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy. At a time when Britain desperately needs growth, protecting tax incentives that encourage people to sit on cash rather than invest is a deeply misguided decision.

“Cash ISA subscriptions surged by £26.1 billion last year, more than four times the increase in Stocks & Shares ISAs, yet the Chancellor has chosen to reinforce the very savings culture that is holding Britain back. Worse still, IG modelling suggests phasing out Cash ISAs for new contributions could generate up to £610 million in additional annual tax revenue by 2032-33, without touching existing savings.

“This Budget should have been about making Britain’s money work harder for its people and its economy instead of defending a tax break that most savers don’t need. The Chancellor should have gone further by phasing out Cash ISAs for new contributions and redirecting those incentives towards helping households invest, build financial security and share in Britain’s future growth.”

But… IG doesn’t actually offer a cash Isa, so it could have benefited from a push into stocks and shares (its Stocks & Shares ISA does pay interest on uninvested cash though).

City experts are welcoming reports that chancellor John Healey will scrap plans to slash the annual cash Isa allowance from £20,000 to £12,000 a year.

According to the Financial Times, Healey had concluded that this is the wrong way to persuade people to invest more in stocks and shares.

The move had been announced by Healey’s predecessor, Rachel Reeves, in an attempt to encourage people to invest in UK companies.

It would have meant that from 6 April 2027, anyone under 65 would only have been allowed to save up to £12,000 in a cash ISA. Anything above that will have to move into a stocks and shares Isa.

Tom Selby, director of public policy at AJ Bell, has cheered the move, and criticised Reeves’s “calamitous reform agenda”, saying:

“Rachel Reeves’ ISA reforms were a car crash, lamented by most of the retail investment industry, who criticised the complexity they would add for little consumer benefit, and building societies, who warned they would increase mortgage costs. Given the Prime Minister’s main focus is on easing cost-of-living pressures, we shouldn’t be surprised the Cash ISA cut is set to be unceremoniously ditched.

“While the central aim of encouraging more people to invest for the long-term was the right one, the route Healey’s predecessor chose to achieve this was painfully convoluted, hardening the border between short-term saving and long-term investing and adding overwhelming complexity – not to mention a tax charge – into the system in the process.

Jo Harris, chief customer and operations officer at Quilter, points out that u-turns have costs:

“There is also a lesson here about how policy is made. The industry has already spent an inordinate amount of time and resource preparing its systems, products and customer communications for these changes.

That is time that could have been spent innovating and improving outcomes for customers. Policy inevitably changes, but announcing complex reforms and asking firms to prepare for them only to reverse course before they take effect is the worst kind of policymaking.”

The Green Party have accused the government of ‘tinkering’ by scrapping gas standing charges in the budget, rather than taking ‘bold action’.

A Green Party spokesperson says:

“Abolishing standing charges is more tinkering from a Government that is failing to take the bold action needed to end the cost of living crisis.

“Energy bills have skyrocketed in recent years and are set to rise by hundreds of pounds again this winter.

“‘Hope’ is an easy thing to promise but will not be delivered by a business-as-usual budget.”

British energy bills are predicted to rise 16% in January to reach the equivalent of about £2,000 for the typical annual dual fuel bill, up from £1,729 a year in the current quarter.

Andrew Sissons, director in sustainable future at Nesta, has welcomed the move, saying:

“Ditching the gas standing charge rightly takes a big chunk off millions of people’s energy bills, sharing costs more fairly and giving cash-strapped households a much-needed boost.

This measure will provide relief to the poorest households who ration their gas use but it will also mean that switching to electric heating such as heat pumps is a better deal for some households that use more gas.

With no end in sight to the international conflicts that are pushing up the price of fossil fuel heating, this Budget will be one to watch for additional measures needed to bring people’s bills down and wean us off reliance on imported oil and gas.”

Abolishing standing charges on gas is also attractive to the Treasury, because it won’t cost them anything!

UK research and charity foundation Nesta recently published a very handy case for abolishing the gas standing charge – which included five reasons why it would be an “an impactful policy change”:

It reduces bills for a majority of people
It is progressive: poorer households will save more than wealthier ones
It supports electrification by reducing the electricity-to-gas price ratio
It should be popular, because people view standing charges as unfair
It costs the Treasury nothing

They also explain that “every home pays the same standing charge, but the amount of gas used varies a lot, and is skewed by a small number of households with outsized consumption.”

The median dual fuel household uses 9,700 kWh of gas per year, but the average is 11,900 kWh.
The top five percent use over 25,000 kWh annually, which jumps up to over 42,000 kWh for the top one percent.

Abolishing the standing charge doesn’t mean that every gas user will save money.

Because the cost is shifting onto the unit rate of gas, a household that consumes a lot of gas might end up paying more overall.

Currently, regulator Ofgem has capped gas bills at 7.97 pence per kWh, plus the 29.68p daily standing charge.

Consumer advice website MoneySavingExpert has estimated that today’s move could add around 1p to each kWh of gas used.

Based on their estimations, using current energy prices, this would see the typical gas unit rate rise from 7.97p/kWh to 9.11p/kWh, they say here.

The Treasury argues that households who don’t benefit from an automatic saving will still have better control over their bills without the worry of affording the standing charge.

It aso says the government will set out “targeted mitigation for a small number of households” in the future.

Abolishing the standing charge will help households control how much they spend on gas, explains energy secretary Miatta Fahnbulleh:

“Too many families face unfair charges, so we’re making it easier for people to take control of their energy bills.

“By removing one of the nation’s bugbears - taking standing charges off gas bills, with extra support for those who need it - we’ll give millions of people breathing space.

“Tackling affordability is my number one priority, and I will keep doing everything I can to protect people from unaffordable bills.”

John Healey has pledged to provide households with “breathing space” from the rising cost of living pressures.

And the Treasury has just announced a new measure to help – the government is removing standing charges from household gas bills in Great Britain.

These fixed daily fees – £108 a year for the typical household on average – cover the costs of connecting to a supply. They are controversial as households pay them even if they only use little energy

Healey will ask regulator Ofgem to end this “unfair and outdated practice” in 2027, or as soon as possible afterwards.

The plan is to shift the cost of standing charges into the unit rate of energy instead.

The Treasury says this could save 60% of account-holding households around an average of £45 off their annual bill.

Healey says:

“Gas standing charges are unfair and outdated so I am scrapping them to give millions of households a bit of breathing space.

“My Budget will draw a line in the sand on an energy policy that has failed British billpayers for years, letting extra costs on bills pile high and leaving households even more exposed to global shocks.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

It’s budget day! And City investors are expecting that chancellor John Healey avoids any bold spending pledges or tax hikes in his first fiscal statement.

Investors anticipate a cautious budget from the chancellor, reasoning that he will prioritise stability in the bond market at a time when borrowing costs are close to their highest levels in around two decades.

With memories of Liz Truss’s budget disaster yet to fade in the City, traders will be alert to any signs that Healey is wavering on the government’s fiscal rules - but the mood music from the Treasury is that fiscal stability is still in vogue.

Last night, the chancellor warned that the world is “a highly uncertain place.”

In a video released before the budget, he said:

“Conflicts abroad are pushing up energy prices, and the cost of living here at home – piling pressure on the families, on businesses and on our public finances.”

One key question for the City is how much fiscal headroom the chancellor has chosen to maintain. That buffer - which measures the safety margin the government enjoys to hit its fiscal rules - will have shrunk as UK borrowing costs rose this year. Back in March, the headroom was a comfy £23.6bn.

Economists predict it will have fallen to between £15bn and £20bn - a figure below £15bn might spook the City.

Morgan Stanley reported on Tuesday that investors they’ve spoken to largely expect a low-key, low-volatility event today.

They told clients:

“No investor we spoke to contemplated a risk of the fiscal headroom coming in at below £15 billion, and most we spoke to said that even £15 billion (our base case) would be a disappointment, with consensus in recent days shifting towards between £15 billion and £20 billion.”

Bank stocks could be hit by the budget too - we’re expecting new taxes on the banks, but we don’t yet know if Healey will simply reverse the Tory-era cut to the bank surcharge, or raise it by more.

The agenda

12.30pm GMT: The budget statement begins
1.30pm GMT: Office for Budget Responsibility releases its latest economic and fiscal outlook
2.30pm GMT: Office for Budget Responsibility press conference

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