Chancellor Rachel Reeves has unveiled a £26bn tax-raising budget targeting Britain's wealthiest households, funding the scrapping of the two-child benefit cap and measures to cut energy bills. The budget will push the tax take to an all-time high of 38% of GDP within five years, according to the Office for Budget Responsibility (OBR).
In a move that will affect millions of workers, Reeves extended a freeze on income tax and national insurance thresholds for a further three years, dragging over 1.7 million people into paying tax for the first time or into higher bands. The OBR projected that nearly one in four taxpayers will pay higher or additional rates by 2030-31, raising £12.4bn.
The chancellor also introduced a new council tax surcharge on properties worth over £2m, increased taxes on dividends, savings and property income by 2p, and capped salary sacrifice pension contributions at £2,000 from 2029. These measures aim to ensure the wealthiest contribute most to repairing public finances.
Reeves defended the threshold freeze, acknowledging it would have a cost for working people, while insisting she had not broken the Labour manifesto. The OBR warned that real disposable household income would rise by only 0.25% a year over the forecast period, reflecting a squeeze on living standards.
Financial markets responded positively, with government borrowing costs falling after Reeves more than doubled her fiscal buffer to £21.7bn. Labour MPs welcomed the £3bn annual spend to scrap the two-child benefit limit, which is expected to lift 450,000 children out of poverty, though some expressed concern about the impact on the 'squeezed middle'.
