Chancellor Rachel Reeves has unveiled a £26bn tax-raising budget targeting the wealthiest households, funding the scrapping of the two-child benefit cap and cutting energy bills. The budget, which saw key details accidentally released early by the Office for Budget Responsibility (OBR), will push the tax take to an all-time high of 38% of GDP within five years.
More than 1.7 million workers will be dragged into paying tax or pushed into higher bands due to a three-year freeze on income tax and national insurance thresholds. This 'fiscal drag' will raise £12.4bn by 2030-31, but Reeves acknowledged it would hit 'working people'. The OBR said the freeze would bring an additional 780,000 people into the basic rate, 920,000 into the higher rate, and 4,000 into the additional rate.
Measures targeting the rich include a new council tax surcharge on properties worth over £2m, a 2p tax increase on dividends and savings income, and a cap on national insurance relief for salary sacrifice pension schemes. The OBR warned that real disposable household income would rise by just 0.25% a year over the forecast period, weaker than previously expected.
Financial markets responded positively, with government borrowing costs falling. Labour MPs praised the decision to spend £3bn a year on scrapping the two-child benefit limit, which the government says will lift 450,000 children out of poverty. Reeves also promised to reduce inflation by removing green subsidies from energy bills and freezing rail fares, potentially cutting bills by £150 a year.
While some Labour figures hailed the budget as a shift leftwards, others expressed concern about the impact on the 'squeezed middle' and the fundamental weakness of the economy. One minister said the budget 'buys them a few months' but does little to address deeper issues.
