Budget 2025: Reeves announces £26bn of tax rises after budget leak

Rachel Reeves has announced £26bn worth of tax rises in her budget, including extending the freeze on personal income thresholds.

The package also contains a new “mansion tax” on properties worth over £2m, while people paying into their pension pot under salary sacrifice schemes will face national insurance on contributions above £2,000.

Politics Live: Budget measures leaked

In a win for Labour MPs, the two-child benefit cap will be scrapped from April, costing £3bn by 2029/30.

Spending is set to rise by £11bn overall by this date, with a big chunk of this money funding policy U-turns on welfare.

The chancellor also announced:

•New taxes on the gambling industry to raise more than £1bn;
•A new mileage tax for electric vehicles from April 2028;
•The amount you can save in a tax-free cash ISA has been slashed from £20,000 to £12,000 except for over 65s;
•The 5p cut in fuel duty will remain in place until September 2026, when it will be reversed through a staggered approach.

Read More: The budget key points at a glance

The measures, which were published by the Office for Budget Responsibility (OBR) ahead of time in an unprecedented blunder, will take the UK’s tax burden to an all-time high of 38% of GDP in 2030-31, the fiscal watchdog said.

Ms Reeves blamed Brexit and the Tories’ legacy, saying her choices would lead to a “fairer, stronger, more secure Britain”.

But Conservative leader Kemi Badenoch said the budget was “total humiliation” given the chancellor promised that her £40bn tax raising budget last year would be a once-in a parliament event.

Ms Badenoch said: “Last year we had the horrors of the Halloween Budget. This year it’s the Nightmare Before Christmas. And as for her, she’s the unwelcome Christmas guest, 10 minutes through the door and and she’s eaten all the Quality Street.”

What does the freeze on income tax thresholds mean?

The freeze on tax thresholds, introduced by the Conservatives in 2021, was due to end by 2028.

Ms Reeves has extended it for another three years, in a move which will raise an estimated £8bn for the exchequer in 2029-2030 by dragging some 1.7 million people into a higher tax band.

The chancellor previously said she would not freeze thresholds as it would “hurt working people”.

However she was left with a fresh fiscal blackhole of around £30bn after the OBR downgraded its growth forecasts for the UK economy in each year from 2026 to 2029.

The “mansion tax” will raise £0.4bn in 2029-30, while charging national insurance on salary-sacrificed pension contributions, to take effect from 2029, is estimated to raise 4.7bn, the OBR said.

A further £2.1bn will be raised through increasing tax rates on dividends, property and savings income by two percentage points.

The measures mean the amount of headroom the government has against the chancellor’s day-to-day spending rule that prevents her from borrowing will widen to £21.7bn, almost £12bn more than March.

Some policies announced today have previously been confirmed by the government, including a “milkshake tax”, a rise in the national minimum wage, the freezing of rail fares and powers for local mayors to impose a tourism tax.

Read More: What the budget means for your money

Further spending announcements include free training for apprentices under 25 at small and medium-sized companies, £5m for secondary school libraries and £18m to improve playgrounds in England.

There have also been spending cuts, including a cut to VAT discount for ride-hailing apps like Uber – something critics have branded a “taxi tax”, while a scheme to help disabled people with the cost of a car will no longer offer “luxury vehicles”.

Labour MPs on side – for now

Patrick Hurley, the Labour MP for Southport, told Sky News the package was “much stronger than I was expecting”.

He added: “Very good news on child poverty, gambling taxes and mansion taxes. A lot done, and a lot still to do after 14 years of declining living standards under a succession of dreadful Tory PMs. But I’ve left the Chamber in a much happier mood than when I walked in at 11.30.”

John McDonnell, A veteran left wing MP within Labour’s Socialist Campaign Group (SCG), said removing the two-child cap was a “major win” for colleagues who had pushed for the government to do.

However he said Ms Reeves’ tax increases on wealth don’t go far enough, with the freeze on tax thresholds offsetting other measures aimed at increasing disposable income and resulting in living standards remaining “at a standstill”.

In a message to the SCG he said: “Despite the policy changes we have secured today on child poverty and taxation of wealth it does frustratingly point to the last 18 months being wasted when with our majority we could have done so much more to address the poverty and inequality that scars our community and put money in peoples pockets to drive economic growth.”