Chancellor Rachel Reeves Asks "Everyone To Contribute" In Tax-Raising Budget
Chancellor Rachel Reeves delivered her second Autumn Budget on Wednesday afternoon (Alamy)
6 min read
Chancellor Rachel Reeves said that she has “asked everyone to contribute” in a Budget that is expected to raise £26bn in tax.
While Reeves didn't breach the Labour manifesto promise not to raise income tax, the rises announced on Wednesday are expected to take the overall level of tax as a share of GDP to 38 per cent by 2029-30, the highest on record, raising £26.1bn.
She said the money raised by the Treasury would support "the security of our country and the brightness of its future".
“This Labour government is changing our country,” the Chancellor told MPs.
“In the face of challenges on our productivity, I will grow our economy through stability, investment and reform. I’ve met my fiscal rules and built our economic resilience for the future.
“I have asked everyone to contribute – yes, for the security of our country and the brightness of its future. But I have kept that contribution as low as possible by reforming our tax system, making it fairer and stronger for the future.”
She added that she has kept “every single one of our manifesto commitments” by not raising National Insurance, income tax or VAT".
Reeves delivered her second Budget this afternoon, but only after the Office for Budget Responsibility (OBR) accidentally published details of her plans before she started speaking in the House of Commons. The OBR has since apologised, announcing that it will investigate how its independent forecast was published early.
Labour MP Louise Haigh, a former cabinet minister, told PoliticsHome that the error showed the "urgent need" for the watchdog to be reformed.
The most significant Budget announcements were widely expected after weeks of media coverage of the key measures.
Income tax and National Insurance thresholds will be frozen until the end of the 2030/31 financial year, three years longer than planned. As a result, a quarter of people are expected to pay the higher income tax rate of 40 per cent or above by 2030. The move is expected to raise £8bn for the Treasury.
The two-child benefit cap will also be scrapped, after the move was called for by swathes of Labour backbench MPs and former Labour prime minister Gordon Brown.
The OBR predicts it will reduce child poverty by 450,000 by 2029-30, relative to the level had the two-child limit remained in place, at a cost of £3bn.
“We on this side of the House do not believe that the solution to a broken welfare system is to punish the most vulnerable children,” Reeves said.
“We are lifting 450,000 children out of poverty with the end of the two-child limit.
“And combined with other actions we are taking, this Labour government is achieving the biggest reduction in child poverty over a Parliament since records began. That is the difference that this government is making.”
Reeves said that when she became chancellor, she “would judge my time in office a success if I know that there are working-class kids from ordinary backgrounds who are living more fulfilling lives”.
According to the OBR forecast, inflation will be 0.4 per cent lower next year. GDP will grow by 1.5 per cent in 2025, above the 1 per cent expected earlier this year. But going forward, the outlook has been downgraded from what the fiscal watchdog projected in March. For example, in 2026, the economy is now expected to expand by 1.4 per cent, below a previous forecast of 1.9 per cent.
Reeves and Prime Minister Keir Starmer sought to make tackling the cost of living a key theme of the Budget.
The government has announced that it is freezing rail fares, extending the freeze on prescription fees, and raising the National Living Wage and National Minimum Wage.
However, the OBR has estimated that living standards will also rise more slowly than previously projected, due to slowing real wage growth and rising taxes.
In better news for the Chancellor, her fiscal headroom — the leeway she has before breaking her fiscal rules — has more than doubled to £22bn, which is likely to reassure the markets about the state of the economy.
Reeves criticised the Conservatives for overseeing a doubling of national debt during their time in government.
“I said there would be no return to austerity, and I meant it,” she said.
“I said that I would cut debt and borrowing, and I meant it: Because of this Budget, borrowing will fall as a share of GDP in every year of the forecast, our Net Financial Debt will be lower by the end of the forecast than it is today, and I will more than double the headroom against our stability rule to £21.7bn – meeting our stability rule and meeting it a year early.”
The OBR forecast also said that reversals to the government's previously announced cuts to winter fuel payments and health-related benefits, along with the removal of the two-child benefit cap, will increase benefits for 560,000 families by an average of £5,310.
Announcements also included that fuel duty will be frozen at its current rate until September 2026, and household gas and electricity costs will be decreased through cuts to green levies on energy bills, costing around £2.3bn according to the OBR forecasts.
The Chancellor also announced a new form of mansion tax, in the form of a high-value council tax surcharge on properties worth over £2m. This will raise over £400m by 2031 and will be charged on fewer than the top 1 per cent of properties.
“I believe that a fair society is one where the wealthiest pay their share,” she said.
Salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance, coming into force from April 2029. The OBR estimates this will raise £4.7bn in 2029-30 and £2.6bn in 2030-31.
In response to the rise in online gambling, some gambling duties will also increase, with Remote Gaming Duty increasing from 21 per cent to 40 per cent and duty on online betting increasing from 15 per cent to 25 per cent. No change will be made to taxes on in-person gambling or horse racing, and Bingo Duty will be abolished from April 2026. These gambling tax reforms are expected to raise over £1bn per year by 2031.
Tory leader Kemi Badenoch said: "What a total humiliation. It's a total humiliation. Last year she put up taxes by £40bn, the biggest tax rate in British history.
"She promised that she wouldn't be 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 growth.
"Today, she has broken every single one of those promises. If she had any decency, she would resign.”
