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British Chancellor Rachel Reeves announced the latest budget on Wednesday, setting out sweeping tax hikes which are projected to raise 26.1 billion pounds ($34.4bn) for the public purse by 2030.<\/p>\n
The budget had been highly anticipated as a \u201cmake or break\u201d moment for the UK\u2019s governing Labour party, which has grappled with poor polling over the past year. Earlier this year, an opinion poll by YouGov found that if an election were to be held now, the far-right Reform UK Party, which takes a hard line on immigration, would come to power.<\/p>\n
In an embarrassing turn, the country\u2019s Office for Budget Responsibility (OBR) published its economic outlook as a result of the budget on its website two hours before the announcement \u2013 something it never normally does until afterwards. Reeves called the blunder \u201cdeeply disappointing\u201d and a \u201cserious error\u201d.<\/p>\n
Reeves acknowledged that the tax rises \u2013 to be paid in large part by freezing existing income tax thresholds, meaning more people will pay higher tax as their incomes rise with inflation \u2013 would adversely affect working people. This breaks a key pledge Labour made in its manifesto before last year\u2019s general election.<\/p>\n
\u201cWe are asking everyone to make a contribution,\u201d Reeves told parliament.<\/p>\n
However, she said the tax rises would help pay for nearly 22 billion pounds ($28.9bn) in fiscal headroom within five years. Reeves also said government borrowing would fall each year. Borrowing in 2025-26 is expected to be 138.3bn pounds ($183bn), falling to 112.1 billion pounds ($148.3bn) the year after and to 67.2 billion pounds ($88.9bn) by 2031.<\/p>\n
While the UK\u2019s budget deficit is forecast at 28.8 billion pounds for the financial year 2026\/2027, Reeves said this would move to surplus in 2028 and forecast a 24.6 billion pounds ($32.55) surplus for 2030\/2031.<\/p>\n
That will pay for welfare spending and means there \u201cwill be no return to austerity measures\u201d, Reeves said.<\/p>\n
\u201cI said there would be no return to austerity, and I meant it. This budget will maintain our investment in our economy and our National Health Service. I said I would cut the cost of living, and I meant it. This budget will bring down inflation and provide immediate relief for families. I said that I would cut debt and borrowing, and I meant it,\u201d Reeves said.<\/p>\n
Here are five key takeaways from this budget.<\/p>\n
Reeves raised taxes by about 40 billion pounds ($52.6bn) in last year\u2019s budget \u2013 the biggest hike in revenue-raising measures in decades \u2013 in what she said would be a one-off needed to put the government\u2019s finances on an even keel.<\/p>\n
This time around, while she did not increase income tax or National Insurance Contributions for working people, she did extend a freeze on the income thresholds at which tax must be paid.<\/p>\n
This means that more people will be dragged into higher tax brackets as their income rises with inflation. The move will pull 780,000 more people into paying basic-rate income tax for the first time by the 2029-2030 fiscal year along with 920,000 more higher-rate taxpayers and 4,000 additional-rate payers.<\/p>\n
\u201cThis \u2018fiscal drag\u2019 means that hundreds of thousands will start paying income tax for the first time, and all existing taxpayers will face higher liabilities,\u201d Irem Guceri, associate professor of economics and public policy at Oxford University\u2019s Blavatnik School of Government, said.<\/p>\n
The previous Conservative government had already frozen these thresholds until 2028. Reeves, who was highly critical of that action at the time \u2013 saying it hurt working people \u2013 now plans to extend that to 2031.<\/p>\n
\u201cI know that maintaining these thresholds is a decision that will affect working people,\u201d she said. \u201cI said that last year, and I won\u2019t pretend otherwise now.\u201d<\/p>\n
\u201cI can confirm that I will not be increasing National Insurance, the basic, higher or additional rates of income tax or VAT [value added tax],\u201d the chancellor added.<\/p>\n
Reeves said she will also target wealthier people via a \u201cmansion tax\u201d on those who own property worth more than 2 million pounds ($2.65m) and is reducing the amount of tax relief some higher earners can obtain on pension contributions. She also announced a 2 percentage point increase in tax rates on rental income, dividends and capital gains.<\/p>\n
Nigel Green, chief executive of the financial advice firm DeVere, said these moves will have wider \u201cbehavioural impacts\u201d. \u201cPeople make long-term decisions about where to work, where to build wealth and where to retire,\u201d he said.<\/p>\n
\u201cWhen rules around pensions tighten sharply, it undermines confidence in the broader system. Wealth moves where governments show stability over decades, not sudden extractions,\u201d he added.<\/p>\n
Following the announcement, Kemi Badenoch, leader of the opposition Conservative party, described Reeves decision to raise taxes, despite promising not to do so again, as \u201ca total humiliation\u201d.<\/p>\n
One of the highly anticipated announcements of the budget was the scrapping of the two-child benefit cap from April 2026. Currently, parents can only claim special tax credits worth about 3,455 pounds ($4,571) per child for their first two children. The cap was imposed by the previous Conservative government. Reeves said this would lift thousands of children out of poverty.<\/p>\n
\u201cThe removal of the two-child limit in child benefit is likely to provide significant support to families currently living in poverty,\u201d Guceri said.<\/p>\n
Experts said the move would appeal strongly to Labour Party backbenchers. \u201cThe two-child benefit cap is widely despised among rebellious Labour MPs as a major contributor to child poverty,\u201d said Colm Murphy, senior lecturer in British politics at Queen Mary University, London. \u201cRepeal was critical for Reeves to have any chance of political survival.\u201d<\/p>\n
Gregory Thwaites, research director at Resolution Foundation (RF), a British think tank that focuses on improving living standards, also said the move was a positive step towards reducing child poverty in the UK.<\/p>\n
\u201cThat\u2019s something that we\u2019ve been campaigning for RF for some time, and we\u2019re very pleased to see that. And then there are some welcome reforms to the tax system, as well. So, for example, charging the people who own very expensive properties a bit more money that will, that\u2019s very welcome, as well,\u201d Thwaites told Al Jazeera.<\/p>\n
\u201cUltimately, budgetary responsibility should not just be seen in terms of fiscal balance but also measures of broader wellbeing,\u201d said professor Jasper Kenter, professorial research fellow at Aberystwyth Business School. \u201cLifting the two-child benefit cap is important in this regard.\u201d<\/p>\n
GMB workers\u2019 union General Secretary Gary Smith welcomed Reeves\u2019s decision to tax wealth and to increase welfare spending, calling this budget the \u201cfinal nail in the coffin for the Conservatives\u2019 failed austerity project\u201d.<\/p>\n
\u201cKey public services, essential national infrastructure, and communities across the UK suffered deep wounds because the Tories made the wrong economic choices \u2013 we must never go back to those dark days,\u201d a statement from Smith read.<\/p>\n
\u201cThe challenge for Labour is to grip the task of rebuilding our economy and country, lock in essential investment to create growth, and start bringing a bit of hope to people,\u201d the statement added.<\/p>\n
Reeves said she would scrap the so-called \u201crape clause\u201d, which exempts women from the two-child benefit cap policy if they can prove their child was conceived non-consensually.<\/p>\n
She described the exemption requirement as \u201cvile, grotesque, dehumanising, cruel\u201d.<\/p>\n
\u201cI\u2019m proud to be Britain\u2019s first female chancellor,\u201d Reeves told parliament. \u201cI take the responsibilities that come with that seriously. I will not tolerate the grotesque indignity to women of the rape clause any longer.\u201d<\/p>\n
In response to the budget, the OBR upgraded its forecast for economic growth for this year from 1 percent to 1.5 percent.<\/p>\n
However, it downgraded economic growth for the following four years. GDP growth in 2026 is now expected to be 1.4 percent (down from 1.9 percent), while the OBR has downgraded its forecast for each of 2027, 2028 and 2029 to 1.5 percent (down from approximately 1.8 percent).<\/p>\n
Much of the downgrade stems from lower expectations for productivity growth. Reeves insisted the sluggish outlook was the legacy of the previous Conservative government, however.<\/p>\n
Reeves also announced a freeze on fuel duty and rail fares, as well as support with energy bills, causing the OBR to revise inflation down by 0.4 percentage points for next year, Guceri said. However, the OBR revised up its forecast for this year to 3.5 percent, \u201creflecting stronger real wage growth and persistent food price pressures\u201d, she added.<\/p>\n
Sterling rose by 0.3 percent against the dollar to $1.3213 just in advance of the budget announcement, before settling back to roughly where it started by the end of it.<\/p>\n
London\u2019s blue-chip FTSE index and the FTSE 250 index rose by about 0.6 percent each in the wake of the budget.<\/p>\n
\u201cSo far, markets showed little reaction to the Budget \u2013 something the Chancellor will view as a success,\u201d Guceri said.<\/p>\n<\/div>\n
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