Millions to pay more tax as Reeves defends £26bn Budget package aimed at easing cost of living
Millions to pay more Chancellor Rachel Reeves has defended a sweeping set of Budget measures that will raise £26bn in new taxes by the end of the decade, insisting she is asking people to contribute “a little bit more” in order to protect public services and stabilise the economy.
Reeves confirmed that income tax and National Insurance thresholds will be frozen for an additional three years, a move that will pull millions into higher tax brackets as wages rise. She insisted the heaviest burden will fall on those “with the broadest shoulders”, with new taxes on high value properties, savings and electric vehicle usage.
The chancellor rejected Conservative attacks that she had broken a promise not to raise taxes, saying the package was the “right thing to do” for a country facing stubborn inflation, rising debt costs and pressure on services. The opposition said she should resign, accusing her of overseeing a “humiliation” and saddling working households with higher bills.
Reeves vows no return to austerity
Delivering her second Budget as chancellor, Reeves told MPs the plan was anchored in “fair taxes, strong public services, and a stable economy” and that Labour would not pursue “reckless borrowing” or a repeat of the austerity policies of previous governments.
The Office for Budget Responsibility (OBR) said the measures will lift the UK’s overall tax burden to a record 38 percent of national income in 2030 to 2031. The watchdog also downgraded economic growth forecasts from next year, adding to pressure on the chancellor to demonstrate stability.
Minutes before Reeves began her speech, the OBR accidentally published key Budget details on its website. Reeves described the leak as “deeply disappointing and a serious error”. The OBR blamed a technical issue and launched an investigation.
Key tax changes
The government confirmed a series of increases and new charges across the system. These include:
- A freeze on income tax and National Insurance thresholds until April 2031 in England, Wales and Northern Ireland
- A new annual levy on homes worth more than £2m, starting at £2,500 and increasing to £7,500 for properties valued at £5m, from April 2028
- A new per mile tax on electric and hybrid vehicles, set at 3p for EVs and 1.5p for plug in hybrids
- An increase in online betting duty from 15 percent to 25 percent
- A £2,000 annual cap on how much workers can contribute to pensions under salary sacrifice arrangements without paying National Insurance
The chancellor said she kept her election pledge not to raise income tax rates, VAT or National Insurance rates, but acknowledged that freezing thresholds will affect working households. Almost one in four taxpayers will pay some Income Tax at the higher rate by 2031.
“I am asking everyone to make a contribution,” she said. “But I can keep that contribution as low as possible because I will close loopholes and ask those with the broadest shoulders to pay more.”
Two child benefit cap to be scrapped
Reeves confirmed that Labour will end the two child benefit cap from April next year. Labour MPs welcomed the move, which the chancellor said would lift 450,000 children out of poverty.
The cap does not affect standard child benefit payments but applies to tax credits and universal credit for families with a third or subsequent child born after April 2017.
Reeves said the policy had failed to reduce family size or cut welfare spending. “It is kids who have paid the price,” she told MPs.
Read More: Ajax Grounded Again: Army Suspends £6bn Armoured Fleet
Cost of living measures for households
The Budget includes a range of measures aimed at helping households with immediate pressures.
These include:
- Scrapping green levies added to electricity bills, saving households around £150
- A freeze on prescription charges in England
- A freeze on regulated rail fares in England
The chancellor said the package reflected her “commitment to the cost of living, the NHS and the long term health of the economy”. She insisted debt would fall as a share of national income and that her headroom buffer against future economic shocks will rise to £21.7bn.
Anger from Conservatives and other opposition parties
Conservative leader Kemi Badenoch accused Labour of abandoning its promises and rebranding itself as “the Welfare Party”. She said Reeves had delivered “higher taxes and out of control spending” and that she should “resign”.
“Last year she delivered the biggest tax raid in British history,” Badenoch said. “She promised it was a one off. Today she has broken every single promise.”
Liberal Democrat leader Sir Ed Davey said Labour had “failed to tackle the cost of living crisis or grow the economy”.
Reform UK leader Nigel Farage described the Budget as “an assault on aspiration and saving”.
The Green Party said Reeves had failed to tax “extreme wealth fairly” and was instead adding pressure to households “already struggling”.
The SNP said the Budget “fails to deliver” for Scotland, warning that an £820m uplift to funding “will not even cover half” of new National Insurance costs for employers.
Market reaction and warnings from economists
Borrowing costs eased and the pound recovered after initial volatility caused by the OBR leak. But the Institute for Fiscal Studies warned that the increased headroom relied heavily on tax rises scheduled just before the next general election. It urged “a healthy dose of scepticism”.
Reeves insisted her Budget balanced difficult decisions with fairness. “I recognise that I am asking ordinary people to pay a little bit more,” she said. “But I have done everything I can to keep that contribution as low as possible while asking those with the broadest shoulders to pay more.”
