Budget 2025: Rachel Reeves vows to ‘take fair and necessary choices’ and ‘action on cost of living’

The chancellor has vowed to “take the fair and necessary choices” in Wednesday’s budget, as she seeks to grow the economy while keeping the public finances under control.

Rachel Reeves said in a statement that she “will not return Britain back to austerity”, and promised to “take action to help families with the cost of living”.

She said she will “push ahead with the biggest drive for growth in a generation”, promising investment in infrastructure, housing, security, defence, education and skills.

But following a downgrade in the productivity growth forecast, coupled with the U-turns on the winter fuel allowance and benefits cuts, as well as what she has previously called “heightened global uncertainty”, she is expected to announce a series of tax rises in order to fill an estimated £30bn black hole in the public finances.

The Conservative shadow chancellor Sir Mel Stride has said Ms Reeves is “trying to pull the wool over your eyes”, having promised last year that she would not need to raise taxes again, and the Liberal Democrat deputy leader Daisy Cooper has accused her and the prime minister of “yet more betrayals”.

‘Smorgasbord’ of tax rises

A headline tax-raising measure tomorrow is expected to be an extension of the freeze on income tax thresholds for another two years beyond 2028, which should raise about £8bn.

This move will be seized upon by opposition parties, given that the chancellor said at last year’s budget that extending the freeze, first brought in by the Tories in April 2021 to raise revenue amid vast spending during the pandemic, “would hurt working people” and “take more money out of their payslips”.

What is being described as a “smorgasbord” of tax rises is also expected to be announced by the chancellor in order to fill the £30bn black hole and pay for her public spending plans, having backed away from a manifesto-breaching income tax rise.

The government has already confirmed that it will allow local authorities to impose a levy on tourists staying in their areas, expand the sugar tax levy to packaged milkshakes and lattes, and impose extra taxes on higher-value properties.

It is being reported that the chancellor will also put a cap on the tax-free allowance for salary sacrifice schemes, raise taxes on gambling firms, and bring in a pay-per-mile scheme for electric vehicles.

What could her key spending announcements be?

As well as filling the black hole in the public finances, these measures could allow the chancellor to spend money on a key demand of Labour MPs – partially or fully lifting the two-child benefits cap, which they say will have an immediate impact on reducing child poverty.

Benefits more broadly will be uprated in line with inflation, at a cost of £6bn, the Times reports.

In a bid to help households with the cost of the living, the paper also reports that the chancellor will seek to cut energy bills by removing some of the green levies, which could see funding for some energy efficiency measures reduced.

Other measures the Times says she will announce include retaining the 5p cut in fuel duty, and extending the Electric Car Grant by an extra year, which gives consumers a £3,750 discount at purchase.

The government has already confirmed a number of key announcements, including an above-inflation £550 a year increase in the state pension for the 13 million eligible pensioners, a freeze in prescription prices and rail fares, and £5 million to refresh libraries in secondary schools.

Extra funding for the NHS will also be announced in a bid to slash waiting lists, including the expansion of the “Neighbourhood Health Service” across the country to bring together GP, nursing, dentistry, and pharmacy services, and £300 million of investment into upgrading technology in the health service.

And although the cost of this is borne by businesses, the chancellor will confirm a 4.1% rise to the national living wage in a bid to tackle the cost of living crisis, taking it to £12.71 an hour for eligible workers aged 21 and over. For a full-time worker over the age of 21, that means a pay increase of £900 a year.

Britons facing ‘cost of living permacrisis’

The Tories, however, have tonight hit out at the chancellor for the impending tax rises, with shadow chancellor Sir Mel Stride saying in a statement: “Having already raised taxes by £40 billion, Reeves said she had wiped the slate clean, she wouldn’t be coming back for more and it was now on her. A year later and she is set to break that promise.”

He described her choices as “political weakness”, choosing “higher welfare and higher taxes”, and “hardworking families are being handed the bill”.

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The Liberal Democrat deputy leader Daisy Cooper is also not impressed, saying tonight: “The economy is at a standstill. Despite years of promises from the Conservatives and now Labour to kickstart growth and clamp down on crushing household bills, the British people are facing a cost-of-living permacrisis and yet more betrayals from those in charge.”

She called on the government to negotiate a new Customs Union with the EU, that she argues would “row our economy and bring in tens of billions for the Exchequer.”

And Green Party leader Zack Polanski demanded “bold policies and bold choices that make a real difference to ordinary people”.