Rachel Reeves has said she is “asking ordinary people to pay a little bit more” after revealing a £26bn tax rise in the Budget, which also included scrapping the two-child benefit cap.
The Chancellor has extended the tax cap freeze for an extra three years, leaving millions of people paying more tax.
But he said the biggest burden would fall on those “with the broadest shoulders” through higher taxes on wealth and savings, including a new tax on homes worth more than £2m.
He said the package – which also includes measures to tackle the cost of living – was “the right thing to do”, but the Conservatives said he should resign for breaking a promise not to come back for higher taxes.
Reeves used his second budget speech as Chancellor to say there would be no “reckless borrowing” and no return to austerity under Labour.
He told MPs it was a budget for “fair taxes, strong public services and a stable economy”.
According to the OBR, the measures would raise taxes by £26 billion in 2029–30, taking UK tax revenues to a peak of 38% of national income in 2030–31.
The watchdog also said Britain’s economy will grow slower than before next year.
Major tax increases include:
- Freeze on income tax and national insurance caps in England, Wales and Northern Ireland for the next three years until April 2031
- Owners of properties worth more than £2m will have to pay a recurring annual fee of £2,500, on top of their council tax bill, from April 2028, rising to £7,500 for properties worth £5m.
- New tax of 3p per mile for electric cars and 1.5p for plug-in hybrids
- Fee on online betting increased from 15% to 25%
- Employees can put up to £2,000 a year into their pension under “salary sacrifice” schemes without paying National Insurance – there is currently no limit.
Instead of raising the headline income tax rate, Reeves decided to poke holes in the spending plan by passing dozens of small tax increases and lowering the tax threshold, which he said last year would “hurt working people.”
Nearly one in four taxpayers will pay some of their tax at a higher rate by 2031, according to calculations by the Office for Budget Responsibility (OBR).
“I know that keeping these borders in place is a decision that will impact working people, I said that last year and now I’m not going to pretend otherwise,” she told MPs.
“I’m asking everyone to contribute. But I can keep that contribution as low as possible because I will further reform our tax system today to make it fair.”
Reeves insisted he stood by Labour’s election manifesto pledge not to increase VAT, income tax rates or National Insurance.
Speaking to reporters after her statement, she said: “I admit I am asking ordinary people to pay a little more, but I have managed to keep that contribution as low as possible by closing loopholes and asking people with broad shoulders to pay more.”
Chaos broke out minutes before Reeves was due to start his budget speech when the OBR, the government spending watchdog, published key details of what was in it.
Reeves, who was informed of the accidental leak by a frontbench colleague, said it was “extremely disappointing and a serious error on their part”.
The OBR blamed a “technical error”, and said it was launching an investigation into how the forecast document appeared on its website.
With Labor lagging in opinion polls and Sir Keir Starmer facing questions about his leadership, Reeves was under pressure to deliver a budget that would appeal to Labor MPs and voters concerned about the cost of living, without upsetting the financial markets.
Labor MPs welcomed his decision to scrap the two-child benefit limit next April, which Reeves said would lift 450,000 children out of poverty.
Despite the name, this does not affect child benefit – but relates to tax credits and Universal Credit payments if you have a third or next child born after 6 April 2017.
Reeves said the policy introduced by the previous Conservative government “made almost no difference to the size of families” and did not cut the welfare bill “but children have paid the price”.
She said she was scrapping the green levy added to electricity bills by the previous government, which she said would cut household bills by £150.
Other measures aimed at cutting the cost of living include a freeze on prescription charges and some rail fares in England.
Reeves was also under pressure to reduce the cost of government debt and increase the buffer against future economic shocks, known as headroom.
He told MPs that debt as a share of national income would continue to fall and the amount of headroom would double to £21.7bn, which should provide some relief from market pressures.
In her budget response, Conservative leader Kemi Badenoch said Labor should change its name to the “Welfare Party”, adding: “This budget only brings higher taxes and out-of-control spending.”
Badenoch said the budget was “a complete disgrace” to Reeves, who should “resign”.
“Last year they taxed £40 billion, the highest tax rate in British history,” he said.
“She promised she wouldn’t come back for more. She swore it was a one-off. She told everyone that from now on it would be stability, and she would pay for everything with Vikas.
“Today he has broken all those promises.”
Liberal Democrat leader Sir Ed Davey said: “Labor was elected on a promise to tackle the living wage crisis and grow the economy – and this is the second budget where it has failed to do so.
“For millions of people struggling with high bills, this budget actually offers higher taxes.”
Speaking at a press conference, Reform UK leader Nigel Farage said: “I would sum up this budget as an attack on aspiration and an attack on saving.”
He added: “Working people will be subsidized on a welfare bill with no sign of any decline.”
The Green Party said the budget “eliminates paper” rather than “fairly taxing extreme wealth”.
Green Party Treasury spokesman Adrian Ramsay said, “The Chancellor talked about asking everyone to contribute, but it is clearly inexcusable that he has made the political choice to squeeze families already struggling with the cost of essential goods, while leaving millionaires and billionaires off the hook.”
The SNP said the budget “failed to deliver” for Scotland.
Shona Robison said the budget was “a chaotic mess” that failed to support Scottish jobs – and the £820m fund uplift announced “will not even cover half the cost of employers’ national insurance contributions brought in this year.”
Government borrowing costs fell and the pound strengthened after an initial selloff triggered by the early release of the OBR forecasts.
But the Institute for Fiscal Studies think tank said the increase in “headroom” in budget forecasts was dependent on a tax increase just before the next general election, which it said “should be treated with a healthy dose of skepticism”.

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