Rachel Reeves has introduced a set of tax increases amounting to £26 billion annually in a Budget that was leaked just before its official release. The Chancellor revealed a new mansion tax targeting properties valued over £2 million and confirmed the removal of the two-child benefit limit, a change long advocated for by anti-poverty advocates.
In a controversial move, income tax thresholds will be frozen, impacting over 1.5 million workers. Additionally, the gambling industry will face new levies, while fuel duty will remain unchanged until the following year, as stated by Ms. Reeves during a lively session in the House of Commons.
The Budget also includes a new tax on homes exceeding £2 million, affecting an estimated 100,000 to 200,000 properties and projected to generate approximately £400 million annually for the Treasury. Furthermore, a “high value council tax surcharge” will be imposed on properties valued above £2 million starting in April 2028.
One of the significant announcements was the abolition of the two-child benefit limit, a policy blamed for perpetuating child poverty. This change, introduced by the Conservatives in 2017, is estimated to cost the Treasury around £3 billion by 2029-30 but is predicted to reduce child poverty for 450,000 children.
Labour MPs, along with former Prime Minister Gordon Brown, have long pushed for the removal of this policy, leading to tensions within the party. Ms. Reeves also confirmed that benefits will be adjusted in line with inflation in April.
Moreover, the Chancellor detailed plans to raise £1.1 billion through reforms to gambling taxes, including an increase in remote gaming duty and the introduction of a new rate for general betting duty. These measures are expected to raise £1.1 billion by 2029-30.
Additionally, the Budget features the first rail fare freeze in three decades, benefiting existing rail passengers with an estimated £600 million savings in the upcoming fiscal year across over a billion train journeys.
Income tax thresholds will remain frozen for another two years until 2030, leading to more individuals moving into higher tax brackets as their incomes rise. The Office for Budget Responsibility forecasts that these changes will yield a total of £56 billion in 2030-31.
Furthermore, a new mileage-based charge on electric and plug-in hybrid cars will be implemented from April 2028, expected to raise £1.4 billion for the Treasury. The average household will see a £150 reduction in energy bills starting in April.
Additionally, millions of pensioners will receive a boost of approximately £550 annually as the state pension increases from April next year, with the current rate of £230.25-per-week expected to rise to over £240-per-week.
Rachel Reeves will maintain the 5p fuel duty cut until September 2026, after which it will be gradually reinstated, according to the Office for Budget Responsibility. This measure is estimated to cost around £2.4 billion next year.
Moreover, around 2.7 million workers will receive pay increases from next April, with the National Living Wage rising to £12.71 per hour for workers over 21-years-old. The National Minimum Wage for 18 to 20-year-olds will also increase to £10.85 per hour.
The Government will introduce national insurance contributions on salary-sacrificed pensions contributions, generating £4.7 billion annually. Contributions exceeding a £2,000 threshold will no longer be exempt from April 2029.
Furthermore, the tax on sugary drinks will be expanded to combat obesity, with the Soft Drinks Industry Levy threshold reduced to 4.5g of sugar per 100ml. This change is set to take effect from January 2028.
Lastly, a new tax on overnight stays in various accommodations, including hotels and Airbnbs, will be implemented, expected to raise costs by £2 per night, with revenues directed to regional authorities for local spending initiatives. Additionally, £300 million will be invested in NHS technology to enhance patient services.