Chancellor's Controversial Budget Plans Unveiled
Chancellor Rachel Reeves is set to deliver her highly anticipated second Budget on Wednesday 26th November, with British households and businesses bracing for significant tax changes. The preparations for this fiscal package have been described as chaotic by economic experts, with some labelling the process a 'shambles'.
The extended period of speculation surrounding potential tax measures has reportedly caused economic damage by creating uncertainty that paralysed business investment and consumer spending. Sir Lindsay Hoyle, the Speaker of the House of Commons, publicly mocked what he called the 'hokey cokey' nature of the Budget development process.
Major Tax Reforms Expected
The centrepiece of Reeves' tax strategy involves a new 'mansion tax' targeting expensive properties. Homeowners with properties valued over £2 million will face an average additional charge of £4,500 annually. This levy will be collected through council tax bills and is expected to affect more than 100,000 properties across Britain.
The Treasury anticipates raising approximately £450 million from this measure alone. To prevent forcing homeowners to sell their properties, the government will likely allow tax payment deferral until the property is sold or the owner passes away. However, property experts warn this could destabilise the housing market while the government pursues its target of building 1.5 million new homes.
Income tax thresholds will remain frozen until 2030, extending the current freeze by two additional years. This stealth tax measure will generate around £8 billion for the Treasury by dragging more workers into higher tax brackets as wages increase. The existing threshold freeze began in April 2023 and was originally scheduled to end in 2028.
Pension and Savings Changes
Workplace pensions face a significant overhaul with plans to reform salary-sacrifice schemes used by millions of private sector employees. These arrangements currently allow workers to accept lower salaries in exchange for higher pension contributions, reducing National Insurance payments for both employers and staff.
The Treasury is considering capping salary sacrifice at just £2,000, potentially saving £2-4 billion annually. According to Confederation of British Industry research, most companies would not absorb these additional costs, meaning workers' pension pots could shrink by tens of thousands of pounds over time.
Cash ISA allowances will be reduced from £20,000 to £12,000 as the Chancellor attempts to encourage investment in stocks and shares. The House of Commons Treasury committee has questioned this approach, warning it might not achieve the desired shift in investment behaviour and could reduce competition in the mortgage market.
Transport and Environmental Measures
Electric vehicle owners face a new 3p per mile tax that would increase average annual ownership costs by £276. This measure aims to address the declining revenue from fuel duty as drivers transition from petrol and diesel vehicles, potentially raising £375 million yearly based on current EV numbers.
Despite this new charge, the Budget will include £1.3 billion to extend grants reducing EV purchase prices by up to £3,750, plus £200 million for expanding charging infrastructure. Campaigners have urged the Chancellor to maintain the fuel duty freeze to support motorists facing financial pressure.
Private hire vehicles may see 20% VAT added to fares, increasing typical journey costs by £2-3. This 'taxi tax' could generate £750 million annually but has drawn criticism from women's safety advocates who argue it could deter vulnerable people from using safe transport options late at night.
Social Security and Additional Levies
The controversial two-child benefit cap is expected to be scrapped following pressure from Labour MPs and charities. Removing this restriction, which prevents claims for third or subsequent children born after April 2017, would cost approximately £3.5 billion annually.
Conservative critics have labelled this move irresponsible given the government's need to address significant public finance shortfalls. The Budget will also confirm inflation-linked increases for working-age benefits including Universal Credit, PIP, and child benefits at an estimated cost of £6 billion.
New taxes on sugary milkshakes and gambling firms form part of the revenue-raising strategy. The dairy exemption from the sugar tax will end, and the threshold for charging will lower to 4g of sugar per 100ml. Former Prime Minister Gordon Brown has advocated for increased gambling levies to fund the removal of the two-child benefit cap.
The national minimum wage will see significant increases, with rates for workers over 21 rising by approximately 4.1% to around £12.71 per hour. Younger workers aged 18-20 could see their minimum wage increase by 8% from the current £10 per hour, fulfilling Labour's manifesto commitment to equal minimum wage entitlement for all adults.
