Chancellor Rachel Reeves has unveiled her second Budget with significant tax and spending measures aimed at tackling Britain's economic challenges, as key documents were released earlier than usual by the government's spending watchdog.
Tax Threshold Freezes and Economic Forecasts
The Office for Budget Responsibility confirmed that personal tax thresholds will remain frozen for an additional three years until 2030-31, dragging millions more workers into higher tax brackets. According to the forecasts, this measure will result in 780,000 more basic-rate taxpayers, 920,000 more higher-rate taxpayers and 4,000 additional-rate taxpayers by the 2029-30 tax year.
In a mixed economic assessment, the OBR upgraded its growth forecast for this year from 1% to 1.5%, but delivered a blow by downgrading projections for the subsequent four years. The independent fiscal watchdog also revealed that government debt is projected to increase from 95% of GDP this year to 96.1% by the end of the decade.
Key Spending Measures and Revenue Raisers
In one of the Budget's most significant welfare reforms, the controversial two-child benefit cap is being scrapped at an estimated cost of £3 billion by 2029-30. This move follows years of pressure from campaigners who argued the policy disproportionately affected poorer families.
Other notable measures include:
- A new high-value council tax surcharge on properties worth over £2 million expected to raise £0.4 billion in 2029-30
- Retention of the 5p cut in fuel duty until September 2026, with reversal through a staggered approach thereafter
- Rail fare freezes saving commuters on pricier routes more than £300 annually
- Prescription costs in England frozen at £9.90
- £1.3 billion added to electric vehicle grants providing up to £3,750 off purchases
The government's fiscal position showed some improvement, with borrowing headroom widening to £22 billion in 2029-30 - £12 billion more than projected in March.
Wage Increases and Protest Response
Ahead of the Budget statement, the government announced significant minimum wage increases taking effect next April. The National Living Wage will rise by 4.1% to £12.71 per hour for workers aged 21 and over, while the rate for 18 to 20-year-olds will increase by 8.5% to £10.85 per hour.
The Budget day saw dramatic protests in central London, with farmers driving tractors to Parliament in defiance of police restrictions. The demonstration targeted proposed inheritance tax changes that farmers argue will "cripple" small family farming businesses.
Chancellor Reeves acknowledged public frustration in her pre-Budget address, stating: "I know that people feel frustrated at the pace of change, or angry at the unfairness in our economy. I have to be honest that the damage done from austerity, a chaotic Brexit and the pandemic were worse than we thought."
The unusual early publication of OBR documents prompted questions about government transparency, though officials emphasised all key measures would be properly scrutinised by Parliament.
