Reeves delivers £26bn tax rise Budget

Chancellor Rachel Reeves delivered a Budget this afternoon that will raise taxes by £26bn in 2029-30.

The package of hikes announced will take the tax burden to an all-time high of 38 per cent of GDP, according to the Office of Budget Responsibility (OBR).

Measures announced today include freezing thresholds on personal tax and employer National Insurance contributions for three years from 2028-29 - a move that will raise £8bn.

The details of her Budget were revealed even before she stood up in the Commons to deliver her speech, thanks to an extraordinary error which saw a report from the OBR accidently released early.

It said that the package of tax rises being announced would bring “the tax take to an all-time high of 38 per cent of GDP in 2030-31”.

That package includes increasing the tax rates on dividends, property and savings income by two percentage points, which will raise £2.1bn.

And salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance from April 2029. That move will bring in £4.7bn.

Reducing the writing down allowance main rate when it comes to Corporation Tax is set to deliver her another £1.5bn.

Another £1.4bn will come from a new mileage-based charge on battery electric and plug-in hybrid cars from 2028. Fuel duty will be frozen at its current rate until September 2026.

Owners of properties valued at more than £2m will pay a new annual tax from 2028. Dubbed a ‘mansion tax’ it will raise £400m.

Reduced capital gains tax relief on disposals to employee ownership trusts will bring in another £900m for The Treasury. The current 100 per cent relief will be cut to 50 per cent.

And reforms to gambling tax will raise more than £1bn per year by 2031, according to the chancellor.

Announcing the freeze on income tax thresholds, Ms Reeves said: “To break the cycle of austerity we need a fair and sustainable tax system. One that generates reliable revenues to fund the public services we all use and supports investment to grow our economy. That does mean that today I am asking everyone to make a contribution.”

The chancellor has more than doubled her headroom to keep within her fiscal rule to balance the budget, from £9.9bn to around £22bn.

The two-child benefit cap ‘within universal credit’ is being lifted from April 2026. Its removal will cost £2.3bn in 2026- 27 and £3bn in 2029-30, according to the OBR.

The chancellor told MPs growth was the “engine that carries every one of our ambitions forward.”

And she listed “stability, investment and reform as a platform which British ambition can finally get moving again.”

She said her fiscal rules will “get borrowing down while supporting investment” and that by 2028/2029 the budget balance will move into a surplus of £3.9bn.

However, the UK’s growth forecasts for the next few years have been revised down by the OBR.

It also expects inflation to reach 3.5 per cent this year - slightly higher than its 3.2 per cent prediction in March.

The chancellor announced that training for under-25 apprenticeships will be free for small and medium-sized businesses. A new “youth guarantee” will provide £820m over the next three years.

The government is also introducing what the chancellor called “permanently lower tax rates” for more than 750,000 retail, hospitality and leisure properties.

She said the move would be paid for through higher rates on properties worth £500,000 or more, such as warehouses used by online retail giants.

She also mentioned several infrastructure projects, including Northern Powerhouse Rail, which she says the government still supported.

Reforms to the Individual Savings Accounts (Isa) system were revealed in the Commons. The full £20,000 allowance will remain, but £8,000 of this will now be designated exclusively for investment purposes. Over 65s will retain the full cash allowance.

The minimum wage for over-21s will increase by 50p per hour from April, to £12.71 - a rise of 4.1 per cent. The rise was announced on the eve of today’s Budget.

Workers aged 18 to 20 will get a bigger increase of 8.5 per cent, to £10.85 an hour. And 16 and 17-year-olds will get a six per cent increase to £8 an hour
The changes are based on recommendations from the Low Pay Commission.

Commenting on the hike, Tina McKenzie, policy chair of the Blackpool headquartered Federation of Small Businesses (FSB), has warned that labour costs are among businesses’ ‘three biggest barriers to growth’.

She said: “With National Insurance contributions rising, employment costs climbing and hiring becoming riskier, small employers are thinking twice about taking people on – and its young people who’ll miss out. Give businesses the capacity to hire and they will - it's that simple.”

In another pre-Budget statement, it was announced that rail fares in England are set to be frozen for the first time in 30 years. Season tickets, peak, and off-peak fares between major cities are included.