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UK Chancellor announces £26bn tax rises, ends two-child welfare limit
Chancellor Rachel Reeves presented a Budget on Thursday featuring £26 billion in tax increases by 2029-30, including extended freezes on income tax thresholds and new levies on high-value properties, while abolishing the controversial two-child benefit cap to reduce child poverty.
Tax burden shifts to higher earners and asset holders
Reeves framed the measures as a "fair" approach, stating she was "asking ordinary people to pay a little bit more" but emphasizing that the largest contributions would come from "those with the broadest shoulders." Key changes include:
- A three-year extension of frozen income tax thresholds, pulling millions into higher brackets;
- A new tax on residential properties valued over £2 million;
- Reforms targeting savings and investment income.
The Office for Budget Responsibility (OBR) projects these adjustments will push the UK's tax-to-GDP ratio to a historic high of 38% by 2030-31, with one in four taxpayers facing higher-rate liabilities within six years.
"I won't pretend this doesn't affect working people-it does. But by closing loopholes and targeting wealth, I've kept the burden as low as possible," Reeves told Parliament.
Cost-of-living relief amid slower growth forecasts
The Budget paired tax rises with targeted support, including:
- Scrapping the two-child cap on welfare payments from April 2025, a move Reeves said would lift 450,000 children out of poverty;
- Removing green levies from electricity bills, saving households £150 annually;
- Freezing prescription charges and select rail fares in England.
However, the OBR downgraded UK growth projections for 2026 onward, citing weaker productivity. Reeves defended the plan as "the right thing to do," rejecting accusations of a return to austerity or "reckless borrowing."
OB leak sparks chaos ahead of speech
Minutes before Reeves addressed MPs, the OBR accidentally published Budget forecasts online due to a "technical error." The chancellor called the breach "deeply disappointing," while the watchdog launched an internal review. The incident fueled opposition claims of government disarray amid Labour's lagging poll numbers.
Political backlash and market reaction
Conservative leader Kemi Badenoch labeled the Budget a "total humiliation" and demanded Reeves' resignation, accusing Labour of breaking a 2024 election pledge not to raise taxes further. "Last year's £40bn tax raid was supposed to be a one-off. Today, every promise lies in tatters," she said.
Criticism spanned the political spectrum:
- Liberal Democrats: Sir Ed Davey argued the Budget "fails on cost-of-living relief and growth;"
- Reform UK: Nigel Farage called it an "assault on aspiration and saving;"
- Greens/SNP: Condemned the lack of wealth taxes and insufficient Scottish funding.
Markets initially reacted negatively to the OBR leak, but borrowing costs stabilized post-announcement. The Institute for Fiscal Studies warned that projected "headroom"-doubled to £21.7bn-relies on pre-election tax hikes that may prove "overoptimistic."
Deficit reduction and debt targets
Reeves affirmed that national debt would continue declining as a share of GDP, a commitment aimed at reassuring investors. The Budget's £21.7bn fiscal buffer-up from £10.5bn-exceeds the OBR's recommended minimum, though analysts questioned its sustainability without deeper spending cuts.
