John Healey hit banks and drove the tax burden to a new record high today - as he promised 'breathing space' for hard-pressed families in his first Budget.

The Chancellor unveiled a fiscal package for the 'working people of Britain' as he tried to balance the books amid the Middle East crisis and Andy Burnham's spending ambitions. 

But while the Government talked up support for spiralling living costs, the help will be targeted - with workers bearing the brunt of rising taxes, largely through the long-running 'stealth' raid of frozen tax thresholds.

Treasury's OBR watchdog now expects revenues from income tax and national insurance to be £17.4billion a year higher by 2030-31 than it predicted only in March. That is despite living standards set for another grim period of stagnation. 

The OBR also said welfare costs are set to keep rising, with no sign of a move to reform the system soon. Kemi Badenoch accused ministers of being 'addicted to welfare'. 

The Chancellor said homes in council tax bands A-D will get a £100 payment to help with energy bills, worth £2.6billion. 

The stripping of VAT from electricity bills is being continued until July, although that will be swallowed up by a projected 27 per cent increase in the energy cap in the New Year.

Mr Healey signalled a longer-term move to strip green levies from energy bills and de-link the gas and electricity markets. 

Earlier, consumer champion Martin Lewis was invited into Downing Street as Mr Healey announced that standing charges will be scrapped from gas bills. The MoneySavingExpert founder has long campaigned for the move. 

However, the £108-a-year levies will not be removed until at least next year - and many bigger families will end up being worse off, as the costs will be moved on to unit costs for gas. 

A scheduled fuel duty hike has been dropped to ease the suffering for motorists, with a freeze extended until at least July 2027. 

The moves will be partly funded by a temporary rise in the bank surcharge, currently levied at 3 per cent on top of the 25 per cent corporation tax rate. It will rise to 6 per cent for 15 months from January.

Mr Healey has set aside £5.5billion to uprate benefits paid to 10million people by 3.5 per cent, in line with inflation. 

He said two long-awaited welfare reviews will report next month, after reforms were kicked off until later in the Parliament. The bill will be brought down in a 'Labour way', he said, after Mr Burnham dismissed 'crude cuts'. 

In other developments today:

• The Defence Investment Plan is being 'fully funded' with an extra £4.7billion, and there will be a target of spending 3 per cent of GDP by 2030. But Mr Healey has delayed saying where the money will come from until the Spending Review next year;   
• The threshold for small business rate relief is being lifted to £18,000 for retail hospitality and leisure businesses, paid for by tax rises on gambling; 
• The OBR upgraded growth forecasts for this year from 1.1 per cent to 1.2 per cent, but trimmed forecasts from 1.6 per cent to 1 per cent; 
• Labour is dropping Rachel Reeves' plans to slash the cash ISA allowance from £20,000 following a backlash;
• Mr Burnham's devolution drive will see all business rates retained locally by the end of the decade, with 20 per cent of revenue going to mayors from next year; 
• Budget documents assume that the Rosebank oil project in the North Sea will be approved, despite resistance from ministers and Labour MPs;
• The minimum wage will be increased by 3.9 per cent from April, but Labour looks to have ditched the drive to equalise the rate for under-21s;
• Lowest-income pensioners will get a special tax allowance to prevent them being drawn into tax by the state pension rise in April; 
• The PM has tried to quash Cabinet unrest over his bid to unwind Brexit, insisting he wants a 'better deal for Britain'.  

 Mr Healey said: 'Fiscal discipline is my first commitment as Chancellor. More than ever, it underwrites every promise this Government makes to the British people.

'In the Budget today, I meet the fiscal rules – the stability rule, the day-to-day spending must be covered by tax receipts. And the investment rule, that Government debt, defined as public sector net financial liabilities, must be falling as a percentage of GDP.

'This year, for the first time, I must meet these rules in the third year of the forecast, and I do.'

The OBR outlook laid out that income tax receipts are due to increase sharply this year.

'This rise is driven by strong nominal earnings growth combining with frozen tax thresholds,' it said. 

'Receipts are then forecast to rise to £610 billion (16.5 per cent of GDP) in 2030-31, before remaining broadly flat as a share of GDP in 2031-32 as thresholds return to being uprated by CPI from April 2031. 

'Almost all of this growth comes from higher PAYE income tax because it is a more progressive tax than NICs, and is therefore boosted by the freezes to tax thresholds.' 

The OBR also warned that the threshold freeze is 'likely to have an adverse effect on financial work incentives by increasing the marginal tax rate on each additional hour of work'. 

'Following our standard approach, we have estimated that, taken together, the threshold freezes in income tax and NICs from 2022-23 to 2030-31 could decrease labour supply by 215,000 in average-hours equivalent (AHE) terms by 2030-31.' 

Mr Healey laid out the details of the Budget to the Cabinet this morning, before striking the traditional pose with his Red Box and team outside No11.

Ahead of the Commons set-piece, he acknowledged the country was facing a 'difficult moment' and promised changes would be made 'responsibly' within Labour's fiscal rules.

He said: 'Breathing space for today and fresh hope for the future. That's what today's Budget will deliver.

'The world's a highly uncertain place. Conflicts abroad are pushing up energy prices, and the cost of living here at home is piling pressure on families, on businesses, and on our public finances.

'But Britain's economy is showing real signs of resilience: investments up, productivity is growing, and we had the joint fastest growth in the G7 in the first half of this year.'

Mr Healey added: 'This Budget is designed to give households breathing space from some of the everyday costs, provide targeted support for businesses and self-employed people, and to start the long-term action needed to get energy costs down for good.'

The Chancellor was accused of an 'insult to families' yesterday after the Treasury revealed measures will include tariff reductions worth just 40p a week off average grocery bills, including cutting the price of gherkins.

Sources said Mr Healey would not set out welfare reforms, despite official projections suggesting sickness benefits will jump from £83billion last year to £109billion by the end of the decade.

He is expected to outline modest increases in defence spending as well, including filling a £5billion hole in the Defence Investment Plan by cutting Net Zero and road projects.

But he is not expected to commit to raising defence spending to 3 per cent of GDP by 2030, despite resigning as defence secretary over the issue earlier this year.

Government sources said Mr Healey is planning a low-key 'steady as she goes' Budget after Ms Reeves imposed record tax hikes in Labour's first two years.

That left the tax burden heading towards its highest ever proportion of GDP, driven by the long-running freeze on tax thresholds.