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Rachel Reeves has announced a set of tax increases totaling £26 billion as part of her Budget, while also removing the two-child benefit cap. The chancellor has extended the freeze on various tax thresholds for an additional three years, which means that millions of individuals will face higher tax bills. However, she emphasized that the greatest financial impact will be on wealthier people, with new charges on luxury properties and savings. Among these is a new annual tax targeting homes valued over £2 million. Reeves defended the Budget as the “right thing to do” amid efforts to address the cost of living, although the Conservative Party responded by demanding her resignation for reneging on a previous pledge not to raise taxes again.
In her second Budget speech, Reeves highlighted that Labour aims to avoid both reckless borrowing and a return to austerity. She described her fiscal plan as promoting “fair taxes, strong public services, and a stable economy.” According to the Office for Budget Responsibility (OBR), these measures will increase tax revenues by £26 billion in 2029-30, pushing the UK’s tax take to a historic level of 38% of national income by 2030-31. The OBR also forecasted slower economic growth starting next year. Among the key proposed tax changes are the continuation of frozen income tax and National Insurance thresholds through April 2031, a recurring annual charge on properties valued above £2 million starting in 2028, a fuel duty for electric and hybrid vehicles, higher taxes on online gambling, and new limits on pension contributions exempt from National Insurance.
Reeves acknowledged that freezing tax thresholds would affect working people, a stance she had already signaled the previous year. Nonetheless, she urged everyone to “make a contribution,” while pledging to reform the tax system to be fairer. She insisted that the Budget respects Labour’s manifesto promises by not increasing VAT, income tax rates, or National Insurance. Speaking to reporters, she stated, “I do recognise that I was asking ordinary people to pay a little bit more, but I’ve managed to keep that contribution as low as I possibly can by closing loopholes and asking those with the broadest shoulders to pay more.” The Budget announcement was briefly overshadowed by an accidental early leak of the OBR’s analysis, which was later described as a “serious error.”
Faced with internal party pressure and public concern about rising living costs, Reeves’ Budget aims to balance support for families and fiscal responsibility. Labour MPs welcomed the decision to end the two-child benefit cap next April, a policy intended to alleviate poverty for 450,000 children. This cap affects tax credits and universal credit payments for children born after April 2017, rather than child benefit itself. Reeves criticized the Conservative-introduced cap as ineffective and harmful to children. Additionally, the Budget proposed scrapping green levies on electricity bills, a move expected to reduce household expenses by around £150. Other cost-of-living support measures include freezing prescription charges and some rail fares in England. On the fiscal front, Reeves assured MPs that government debt relative to national income would decline and that the economic “headroom” for future shocks would double to £21.7 billion.
The reaction from opposition parties was sharply critical. Conservative leader Kemi Badenoch branded the Budget a “total humiliation” for Reeves and urged her to resign, accusing her of breaking tax promises made the previous year. The Liberal Democrat leader accused Labour of failing to deliver on addressing both the cost of living crisis and economic growth. Reform UK leader Nigel Farage condemned the Budget as an “assault on aspiration and an assault on saving,” arguing that working people would end up subsidizing an ever-growing welfare bill. The Green Party criticized the government for failing to tax extreme wealth more fairly, with Treasury spokesman Adrian Ramsay condemning the decision to squeeze struggling households while letting the very wealthy off the hook. The SNP labeled the Budget a “chaotic mess” that fails to support Scottish jobs adequately. After the initial market turbulence caused by the premature release of forecasts, borrowing costs eased somewhat. However, the Institute for Fiscal Studies cautioned that the doubling of fiscal headroom relies heavily on tax hikes planned just before the next general election, warning this should be viewed with skepticism
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