Reeves says two-child benefit cap to go from April next year
Reeves says it is the government’s job to cut child poverty.
But there is one policy above all that has increased child poverty – the two-child benefit cap.
She says this has failed on its own terms. It has not cut the benefits bill, and it has not led to people having smaller families.
It has led to child poverty going up.
She says she does not think children should be penalised.
And she says the two-child benefit led to the rape clause, leading to women having to prove they were raped if they wanted to be exempt from the two-child limit.
She says that it humiliating. She will not tolerate, she says – saying she is the first woman to be chancellor.
And so she will abolish the two-child benefit cap from April.
Key events
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Reeves claims freezing tax thresholds does not breach Labour’s manifesto – while admitting this sounds like ‘semantics’
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TUC welcomes budget, but Unite says ‘wrong decisions are being made’ because very wealthy left ‘largely unscathed’
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City experts sceptical about budget plans
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Pay-per-mile charge for electric vehicles could reduce EV sales by 440,000 over next five years, OBR says
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Bank shares rally after windfall tax is swerved
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Household enegy costs to drop
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OBR’s Miles: budget is an old-fashioned Keynesian demand boost in the near term
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IFS queries whether spending restraint planned by Reeves for end of decade is realistic
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Campaigners dismiss ‘mansion tax’ as ‘superficial fix’, as Treasury says it is only set to raise £430m
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Will OBR chief resign over damaging release of its EFO?
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Treasury claims poorest 10% of households will benefit most proportionately from budget
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Track how income tax threshold freeze will hit your income
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North Sea transition plan released
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Markets unruffled by budget
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Tax take heading to record high
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Badenoch says budget ‘littered with broken promises’
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Badenoch says Reeves will go down as Britain’s worst chancellor
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Reeves claims she has not broken Labour’s manifesto promises on tax
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Reeves says axing ECO scheme will cut average household bills by £150 on average
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Deutsche Bank: third largest tax-raising Budget since 2010.
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Reeves says two-child benefit cap to go from April next year
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Reeves says remote gambling duty rising to 40%, raising more than £1bn
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Reeves confirms new tax being introduced for electric cars
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Reeves confirms council tax surcharge, or ‘mansion tax’, for homes worth more than £2m
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Reeves claims tax reforms will mitigate impact of extra three-year thresholds freeze
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Reeves says mineworkers to get access to reserves in their pension fund
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Salary sacrifice pension contributions over £2,000 to be liable for national insurance, OBR document says
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Reeves says debt will fall by end of forecast
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New GDP growth forecasts largely worse than before
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Reeves says she will cut Isa allowance – unless some of it invested in stocks and shares
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Reeves says downgraded productivity growth forecasts are ‘Tories’ legacy’
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Reeves says OBR has updated growth forecast for 2025 from 1% to 1.5%
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Reeves starts budget statement by saying early release of OBR report ‘deeply disappointing’ and ‘serious error’
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OBR report: the key points
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Shadow chancellor Mel Stride says ‘leak’ of OBR report could be criminal offence
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UK borrowing costs fall as budget ‘doubles fiscal headroom’
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OBR apologises for accidental early release of its budget report
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OBR downgrades medium-term productivity growth to 1%, from 1.3% forecast in March
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Budget to create £22bn headroom, OBR report says
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OBR leak shows taxes rising to a record high, Lib Dem leader Ed Davey says
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Badenoch calls for inquiry into budget leaks
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Income tax thresholds will be frozen for another three years, to 2030-31 in budget, Reuters says
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Leaked OBR forecasts say GDP to grow by 1.5% over forecast period
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Farage says Reform UK will pay legal costs of farmers arrested at Westminster protest
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Starmer tells cabinet budget ‘not a spreadsheeet’, but about choices ‘centred in fairness’
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Reeves leaves Downing Street ahead of budget
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TUC general secretary Paul Nowak dismisses concerns about minimum wage rate rises as ‘scaremongering’
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What newspaper front pages are saying about the budget
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Resolution Foundation warns minimum wage rises for younger workers could do ‘more harm than good’
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Farmers stage budget day protest in Whitehall – despite Met police telling them to stay away
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Darren Jones says some pre-budget leaks have been ‘unacceptable, and not very helpful’
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Reeves says budget will involve ‘fair and necessary’ choices
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Budget to target cost of living crisis as Reeves battles to keep Labour MPs on side
Reeves claims freezing tax thresholds does not breach Labour’s manifesto – while admitting this sounds like ‘semantics’
Rachel Reeves has held a Q&A with reporters at a hospital. After two relatively neutral questions, she called Beth Rigby, the Sky News political editor, who went full Kemi Badenoch. Rigby said that Reeves suggested in her budget speech last year that freezing tax thresholds would be a breach of the manifesto, and she went on: “How in good conscience can you stay on in your job?”
Reeves said that the manifesto referred to the rates of income tax and VAT.
But she also said she was “not going to get into semantics”. She said she accepted that, by freezing thresholds, she was asking people to pay more.
Rigby tried again. She said the IFS say the manifesto promise has been broken.
Reeves replied:
If you read the manifesto, we’re very clear. We say the rates of income tax, national insurance and VAT. But if you are asking, does this have a cost for working people? I acknowledge it does. As I said that in the budget last year. I’m not going to pretend otherwise today.
In fact, the manifesto was not clear. It said:
Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT.
At the time, most policy specialists took the second half of that sentence as the operative part, and many of them are willing to accept that freezing thresholds, while it breaks the spirit of the manifesto, does not break the letter of it.
But other people would argue that “Labour will not increase taxes on working people” is the key clause in the manifesto sentence. And one person who has suggested this is the Rachel Reeves who delivered her budget speech last year. At the time she said:
Having considered the issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips.
I am keeping every single promise on tax that I made in our manifesto, so there will be no extension of the freeze in income tax and national insurance thresholds beyond the decisions made by the previous government.
From 2028-29, personal tax thresholds will be uprated in line with inflation once again.
This passage only makes sense if you assume that freezing thresholds would be a breach of the manifesto. A lawyer would argue that it’s the “so” in the middle of the second paragraph gives it away.
With the budget out of the way, the Bank of England could now see its way clear to cutting interest rates before Christmas.
The BoE is scheduled to set interest rates on 18 December, and the markets indicate there is an 85% chance of a cut, from 4% to 3.75%.
Laith Khalaf, head of investment analysis at brokerage AJ Bell, says:
“From an inflationary perspective, the rise to the minimum wage isn’t helpful, though clearly some good news for lower paid workers.
However, the cut to household energy bills means that overall this Budget reduces inflation by 0.3% next year according to the OBR, so the coast is clearer for a loosening in monetary policy. It’s now over to the Bank of England to deliver on that score. The Bank is already widely expected to deliver a Christmas rate cut in December, but the Budget’s dampening of inflation should pave the way for more cuts next year.
TUC welcomes budget, but Unite says ‘wrong decisions are being made’ because very wealthy left ‘largely unscathed’
Here is some trade union reaction to the budget.
Paul Nowak, the TUC general secretary, said Rachel Reeves was turning the page on the Tory era.
Fourteen years of Conservative government took a wrecking ball to living standards – with pay packets squeezed, child poverty at crisis levels and vital public services left on their knees after years of cuts.
This government is starting to turn the page on that failed Tory era.
But fixing the mess that the Tories left will take time. We now need to see a relentless focus on affordability and making work pay beyond this budget.
But Christina McAnea, the Unison general secretary, says Labour needs to go “further and faster”.
Scrapping the cruel two-child benefit cap is a victory for thousands of working families. Good riddance to it. But it should’ve happened sooner.
It shows Labour is at last heading in the right direction and helping those who most need support.
But the government must go further and faster if it wants to fix Britain.
And Unite said in a statement.
On the fundamental issues of who pays for the crisis and the investment required to back British industry, the wrong decisions are being made.
Millions of workers are being forced to live hand to mouth, surviving rather than living.
Communities are being ground down by surging energy bills and baked in high food prices, while at the same time profits soar.
Energy companies have made over £3bn in profits, costing households £500, while supermarkets led by Tesco – which made £3.1bn – are coining it in.
The chancellor has picked a side. Health workers, engineers, and tanker drivers will pay through stealth taxes, while city bankers and billionaires go largely unscathed.
The bond market reaction to the budget should please the chancellor, although it’s still early days.
Borrowing costs are still down, with the yield on 10-year bonds now down 0.06 percentage points at 4.42%.
30-year yields are off 0.9 percentage points at 5.22% (away from the 27-year high of 5.75% set at the start of September).
Iain Barnes, chief investment officer at modern wealth manager Netwealth, says:
“With the caveat that the first reaction isn’t always the lasting reaction, markets are interpreting this Budget as a potential risk event avoided. Gilt yields are lower, rewarding a better picture on the UK’s fiscal headroom in the medium term and reflecting a slightly slower forecast for economic growth.
The market has put the concern about future bond issuance required for borrowing levels to one side for now. Equities are largely unmoved, moving slightly higher with international markets.”
One of the most powerful bankers on Wall Street has expressed some backing for the budget.
JPMorgan chairman and chief executive Jamie Dimon said on Wednesday British finance minister Rachel Reeves‘ focus on measures to foster growth in her budget was the only way to “lift up everyone.”
In rare remarks on the day of a national budget, Dimon said the Chancellor’s financial discipline should be something that markets should welcome, in an emailed statement to Reuters.
City experts sceptical about budget plans
Some City experts are sceptical that the tax rises outlined in today’s budget will actually happen as outlined today.
David Zahn, head of European fixed income at Franklin Templeton Fixed Income, says Rachel Reeves has kicked the can down the road, to the point of the next election:
“Today’s UK Budget announcement from the Chancellor sees an increase in spending and borrowing through 2028. However, most of the planned tax rises do not kick in until 2029 and beyond. This approach effectively kicks the can down the road until the next parliamentary election to deal with the spending gap. The probability that those tax changes are delivered seems low given it will be a new parliament, potentially with a different majority party.
“Meanwhile, the OBR’s revised outlook — lower growth post-2025 and higher inflation — should lead Gilts to see higher yields in the long end of the curve.”
Zahn is also telling a briefing in the City now that he doesn’t see much that is pro-growth in today’s budget. It’s “more tax and spend”, he cautions. “In the round, it’s more of the same.”
Former Bank of England policymaker Michael Saunders also has concerns. Saunders, now Senior Economic Advisor at Oxford Economics, says:
In narrow terms – meeting the fiscal rules with greater headroom – the Budget meets its objectives. But in other respects, it looks less reassuring.
First, it implies that all the tightening between 2024/2025 and 2029/2030 is via a rising tax GDP/ratio: the public spending/GDP rises slightly over that period. By contrast, the October 2024 Budget and March 2025 Spring Statement both included a modest contribution (about a quarter of the overall tightening) from a lower spending/GDP ratio. Historical experience suggests that fiscal consolidations focussed on tax hikes have a relatively low success rate.
Second, with public spending revised up, the Budget reinforces the impression that the government is unwilling to take difficult decisions to rein in public spending.
Third, the Budget again postpones the planned fiscal tightening, with the cyclically adjusted higher in 2026-28 but lower thereafter. There is likely to be some scepticism as to whether that postponed tightening will be delivered in the runup to the next election (due in 2029).
Fourth, the Budget lacks any substantial supply-side measures that might significantly raise potential GDP growth and lift the UK out of the current low-growth rut.
As a result, the Budget still leaves the UK with a relatively weak fiscal position, with the public debt/GDP well above levels of 20 years ago, low potential growth and ageing population. The UK is still not securely on a sustainable fiscal path.
Pay-per-mile charge for electric vehicles could reduce EV sales by 440,000 over next five years, OBR says
Here is Gwyn Topham’s story about the motoring elements in the budget – the fuel duty freeze, and the 3p-per-mile charge for electric vehicles (EVs).
In its initial budget reaction, the Institute for Fiscal Studies says this could turn out to be one of the most significant changes in the budget. It says:
It is welcome that the government has finally set out some sort of plan for how electric cars will be taxed in the long term: a per-mile tax. As the take-up of electric vehicles spreads, this is due to become the second-biggest measure in the Budget, raising £7bn a year in today’s terms by the time all cars are electric. But what the flat tax proposed fails to reflect is the fact that driving at congested times and places imposes much higher costs on society (principally other drivers) than other driving.
But the Office for Budget Responsibility points out in its report that the policy
The yield from the measure is uncertain as it dependent on the uptake of electric vehicles over the next five years. The government’s zero-emission vehicle (ZEV) mandate requires EVs to make up an increasing minimum proportion of total manufacturer sales over the next five years, reaching 80 per cent in 2030. This new charge is likely to reduce demand for electric cars as it increases their lifetime cost. To meet the mandate, manufacturers would therefore need to respond through lowering prices or reducing sales of non-EV vehicles. Overall, as a result of this measure, we estimate there will be around 440,000 fewer electric car sales across the forecast period relative to the pre-measures forecast, with 130,000 of this offset by the expected increase in sales due to other budget measures described below.
Here is the Treasury consultation paper on the proposal.
Bank shares rally after windfall tax is swerved
Kalyeena Makortoff
There will be a number of happy faces across the City today, as banks finally had confirmation that they were spared of any tax hikes as part of Reeves’ budget.
David Postings, CEO of lobby group UK Finance, said he recognised that Reeves had tough choices to make but welcomed the “ongoing support she has shown for the financial services sector.”
“This sends an important signal to international markets that the UK is focused on growth and attracting investment.”
Shares in high street banks made further gains on Wednesday afternoon, having jumped on Tuesday following FT reports that banks would be spared a tax raid. NatWest are up 2.4%, Barclays up 2.9%, Lloyds up 3.2% and HSBC up 1.3%.
Chris Hayward, policy chairman at the City of London Corp, said that while Reeves had delivered a “mixed set of measures” for the UK’s financial and professional services sector (raising concerns about taxes on dividends and pension contributions): “No change on bank taxation is welcome and will reassure lenders”.
Postings added:
“A strong economy needs a strong financial sector, which in turn backs jobs, businesses and the whole economy. We look forward to continuing to work in partnership with the government to support its growth mission and the wider economy.”
Household enegy costs to drop
Jillian Ambrose
Household energy costs will tumble by £150 a year for the average gas and electricity bill from next April after the Chancellor agreed to help cover the cost of the government’s green energy policies.
The typical home energy bill will fall from £1,755 today to around £1,665 from 1 April 2026 after Rachel Reeves promised to cover 75% of the costs of a government scheme which supports some of the country’s earliest renewable energy projects through a levy on energy bills which was typically around £88 a year.
Reeves will also scrap the Conservative government’s “failed” energy companies obligation (ECO) scheme which used around £59 per household to fund home energy efficiency improvements – but often the cost for those living in fuel poverty was more than the savings it delivered.
There will also be a £7 saving on VAT from the two measures, adding up to £154 off bills for the average household, the chancellor said:
“I can tell you today that for every family we are keeping our promise to get energy bills down and cut the cost of living with £150 cut from the average household bill from April next year.”.
The help to lower energy bills was warmly welcomed by the energy industry which has seen costs surge in the years since Russia invaded Ukraine, triggering a surge in gas market prices which has led to record high levels of energy debt.
“Support for energy bill payers is long overdue,” according to Dhara Vyas, the chief executive of Energy UK.
“Investing in clean power will protect customers from volatile prices and lead to more stable bills in the future. But people are struggling now, and reducing bills for all customers is an important first step.”
Greg Jackson, the boss and founder of Octopus Energy, Britain’s biggest energy supplier, said: “Making electricity cheaper is also crucial for people adopting electric heating and electric vehicles.”
OBR’s Miles: budget is an old-fashioned Keynesian demand boost in the near term
Q: How is the budget a near-term boost to GDP?
It’s a bit of a fiscal loosening in the near term, explains the OBR’s David Miles during today’s press briefing on its economic and fiscal outlook.
Miles explains that the budget includes “a fairly substantial spending increase” in the next couple of years.
The big increases in tax don’t come until “a bit further down the road”, along with a fall in departmental spending at the end of the forecast horizon.
It’s a slight, what you might call an old-fashioned Keynesian demand boost to the economy in the very near term, and it pushes the growth rate up a little bit.
The government wants to reduce the number of asylum seekers crossing the Channel in small boats and end the use of hotel accommodation for them by the end if this parliament. The Office for Budget Responsibility sounds a bit sceptical. Here is a paragraph from the section in its report about “pressures” on spending.
The Home Office spending review settlement was made on the basis that the Home Office would fully stop the use of hotels for asylum-seekers in this parliament, and asylum spending would be £1.1bn lower at £2.5bn in 2028-29 compared to 2025-26 plans. So far this year, the number of migrants arriving by small boat and asylum seekers in supported accommodation has risen by 19 and 8 per cent, respectively, compared to last year. If spending on asylum remained at its 2024-25 level, this would imply £1.4bn of additional pressure on the Home Office budget by 2028-29.
IFS queries whether spending restraint planned by Reeves for end of decade is realistic
The Institute for Fiscal Studies is also a bit disappointed by the “mansion tax”. (See 3.14pm.) Here is an extract from the initial budget analysis it has just released. The IFS is always campaigning for sensible tax reform, and it is usually disappointed when chancellor reveal they have other priorities.
Turning to tax, the chancellor found a way to cobble together a sizeable package without increasing the main rates of National Insurance contributions, VAT or income tax. The package was skewed towards raising more from those with high incomes. That’s also true of the largest single measure, a three-year extension to the freeze in personal tax thresholds which raises £8bn in 2029–30 and £13 billion in 2030–31 – though a 1 percentage point increase in all rates of income tax would have raised a similar amount while bringing in more from those at the very top. Because it includes a freeze in national insurance thresholds, it also breaches the government’s manifesto tax promise not to increase National Insurance – as does the cap on salary sacrifice. And, as the chancellor acknowledged, it clearly represents a tax rise on working people. A range of other tax increases – on pension contributions, unearned income, business investments and capital gains – weaken incentives to save and invest.
A grand tax-reforming budget, this certainly was not. The chancellor continues to show no real appetite for using tax reform to boost growth. One bright spot was the decision to do something on the taxation of electric cars, for which the government does deserve credit, though levying a motoring tax which bears no relation to congestion is far from ideal. When it comes to property, we now have a council tax system based on 1991 values, with a new complicated bolt-on for high-value houses based on what the house is worth today. There’s a reasonable case for levying more high-value homes, but the design of this tax leaves much to be desired.
The IFS also questions whether the spending restraint that Rachel Reeves has pencilled in for the end of the decade are credible.
To stress: borrowing will be higher in each of the next three years. Only after that point, from 2029–30, will borrowing be lower than previously planned, due to a set of back-loaded tax rises and promises of spending restraint in the next spending review period.
The additional spending and borrowing in the short-term is readily believable. The future restraint, just before the next election? One could be forgiven for treating that with a healthy dose of scepticism.
