Rachel Reeves has vowed to inject “more pounds in people’s pockets”, tackle NHS issues, and boost economic growth as part of Labour’s maiden Budget, even though she acknowledges that challenging decisions lie ahead. As the first woman to become Chancellor, Reeves expressed that there are “no short cuts” to realising the economic growth promised by Labour, except through substantial investment.
In a revealing speech, Ms Reeves announced tax increases of £40 billion and highlighted the “immense” potential rewards of Labour’s strategy, detailing new investments aimed at reducing NHS waiting times, facilitating the construction of affordable housing, and restoring dilapidated schools. Despite her plans to funnel billions into the health service, Reeves cautioned that the proposed tax boosts and borrowing might fall short of rectifying “14 years of damage” inflicted on the NHS.
The proposals also include a significant raise in the minimum wage to £12.21 per hour, while Labour has committed to not raising principal taxes that affect the earnings of “working people”: national insurance, VAT, and income tax. However, businesses have voiced concerns over approaching financial turbulence, fearing a “perfect storm” induced by increased taxation, salary obligations, and the expenses associated with executing Labour’s ambitious reform of workers’ rights.
The chancellor has unveiled plans to hike employers’ national insurance contributions, potentially generating up to £20 billion to fund public services and a minimum wage increase of at least 6.7% from April for over three million workers, which will increase costs for businesses. The Chancellor stated: “Politics is about choices. This Labour government chooses investment over decline. In the Commons, she will tell MPs: “My belief in Britain burns brighter than ever.
And the prize on offer today is immense. “More pounds in people’s pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all. Because that is the only way to improve living standards. And the only way to drive economic growth is to invest, invest, invest. There are no shortcuts. To deliver that investment we must restore economic stability.”
Accusing the Conservatives of failing the nation, Reeves stated that austerity had broken the NHS and that the Tory’s Brexit deal had negatively impacted businesses.
She also criticised Liz Truss’ mini-budget amidst jeers in the chamber. “The British people have inherited their failure, a black hole in the public finances, public services on their knees, a decade of low growth and the worst parliament on record for living standards. Together, the black hole in our public finances this year, which recurs every year, the compensation payments which they did not fund, and their failure to assess the scale of the challenges facing our public services means this Budget raises taxes by £40 billion.”
“Any chancellor standing here today would face this reality, and any responsible chancellor would take action. That is why today, I am restoring stability to our public finances and rebuilding our public services.”
Here are the key points in the budget:
Minimum wage
The minimum wage will rise to £12.21 an hour next year after the Chancellor confirmed a 6.7% increase. Ms Reeves described the move as a “significant step” towards delivering on Labour’s manifesto promise to introduce a “genuine living wage for working people”.
The increase, recommended by the Low Pay Commission, will mean an extra £1,400 a year for a full-time worker earning the main minimum wage rate, known as the national living wage, from April 2025. But it still falls short of the £12.60 per hour UK living wage calculated by the Living Wage Foundation. The Chancellor also announced that the minimum wage for people aged 18-20 would rise to £10 an hour, an increase of £1.40.
Freeze income tax thresholds
There will be no extension of the freeze in income tax and National Insurance thresholds beyond the decisions of the previous government. From 2028-29, personal tax thresholds will be uprated in line with inflation once again.
Compensation
Chancellor Rachel Reeves has announced £11.8 billion to compensate those impacted by the infected blood scandal, and £1.8 billion to compensate the victims of the Post Office Horizon scandal. Ms Reeves said: “The previous government also failed to budget for costs which they knew would materialise. That includes funding for vital compensation schemes for victims of two terrible injustices: the infected blood scandal and the Post Office Horizon scandal.
“The Leader of the Opposition rightly made an unequivocal apology for the injustice of the infected blood scandal on behalf of the British state, but he did not budget for the costs of compensation. Today, for the very first time, we will provide specific funding to compensate those infected and those affected, in full with £11.8 billion in this Budget. I am also today setting aside £1.8 billion to compensate victims of the Post Office Horizon scandal, redress that is long overdue for the pain and injustice that they have suffered.”
(Image: PRU/AFP via Getty Images)
Benefits and fraud crackdown
Chancellor Rachel Reeves said she will crack down on fraud in the UK’s welfare system, as part of reforms to ensure welfare spending is “more sustainable”. Reeves said that the government will publish a “Get Britain Working” white paper designed to get those who are unemployed back to work and reduce the strain on the benefits system. She said DWP investigators would;d have ‘direct access to bank accounts’ to recover funds. There will be a new crackdown on tax avoidance.
“I can today announce a crackdown on fraud in our welfare system often the work of criminal gangs. We will expand DWP’s (Department of Work and Pensions) counter-fraud teams using innovative new methods to prevent illegal activity and provide new legal powers to crackdown on fraudsters, including direct access to bank accounts to recover debt. This package saves £4.3 billion a year by the end of the forecast.”
Carers allowance
The weekly earnings limit for carer’s allowance will rise to the equivalent of 16 hours a week at the national living wage. Ms Reeves said: “Carer’s allowance currently provides up to £81.90 per week to those with additional caring responsibilities.
“Today, I can confirm that we are increasing the weekly earnings limit to the equivalent of 16 hours at the national living wage per week, the largest increase since carer’s allowance was introduced in 1976. “That means a carer can now earn over £10,000 a year while receiving carer’s allowance, allowing them to increase their hours where they want to and keep more of their money.”
Pensions
Ms Reeves reiterated the Government’s commitment to the pension triple lock, telling the Commons the basic and new state pension will rise by 4.1% in 2025-26. The increase will see the weekly benefit rise to £230.30 for the full new flat-rate state pension. However, with income thresholds set to remain frozen, an individual receiving just the state pension will be taxed on their income from 2027.
The Chancellor told the Commons: “The pension credit standard minimum guarantee will also rise by 4.1%, from around £11,400 per year to around £11,850 for a single pensioner.”
Tax crackdown
Chancellor Rachel Reeves has vowed to crack down on unpaid taxes to raise £6.5 billion by the end of the forecast period. “Before a government considers any change to a tax rate or threshold, it must ensure that people pay what they already owe,” she told the Commons.
“So we will invest to modernise HMRC’s systems using the very best technology and recruit additional HMRC compliance and debt staff. We will clamp down on those umbrella companies who exploit workers, increase the interest rate on unpaid tax debt to ensure people pay on time, and go after promoters of tax avoidance schemes. These measures to reduce the tax gap raise £6.5bn by the end of the forecast.”
Drivers
Fuel duty will be frozen next year at a cost to the Treasury of more than £3 billion. In her Budget speech to the Commons, Ms Reeves said this is a “substantial commitment” but insisted raising taxes on fuel would be “the wrong choice for working people”.
This means the 5p-per-litre cut in fuel duty introduced by the Conservative government in March 2022 will continue.
Alcohol,Tobacco, vaping and soft drinks
Reeves announced she will be cutting duty on draft alcohol – to loud cheers from MPs. “Which means a penny off the pints at the pubs,” the chancellor says. Alcohol duty rates on non-draught products will increase in line with RPI from February next year. Reeves says the government will renew the tobacco duty escalator at RPI +2%, increase duty by 10% on hand-rolled tobacco this year, introduce a flat-rate duty on all vaping liquid from 2026, and a one off increase in tobacco duty to maintain the incentive for smokers to give up smoking. Flat rate duty on all vaping liquid from 2026 Sugar tax to be increased on soft drinks and to rise with CPI
Employers’ national insurance
Reeves announced that National Insurance contributions by employers will rise from 13.8% to 15%. In addition, the threshold at which businesses start paying National Insurance on a workers’ earnings will be lowered from £9,100 to £5,000. Reeves says she is increasing employment allowance to help smaller businesses.
The employment allowance will increase from £5,000 to £10,500, which the chancellor says will mean 865,000 employers won’t pay any National Insurance at all next year. She adds over one million will pay the same or less as they did previously.
Capital gains tax
Reeves tells the Commons that capital gains tax (CGT) will increase. This tax is charged on profits which are made from selling assets such as a second home or investments, including shares.
The lower rate of Capital Gains Tax will rise from from 10% to 18%, and the higher rate from 20% to 24%, she says. The CPA on residential property will remain at 18% and 24%.
Inheritance tax
Inherited pension pots will be subjected to inheritance tax from April 2027 under new rules announced by the Government on Wednesday. Alongside changes to pension pots, the Chancellor confirmed that she was extending the freeze on thresholds until 2030. The threshold freeze was due to expire in 2028. Ms Reeves also announced that she would cap relief on the inheritance of agricultural land and family businesses, both of which can be passed on tax free under current rules.
Covid corruption
Reeves also announced the appointment of a Covid corruption commissioner to investigate money paid out to fraudsters in the pandemic. Reeves also confirms that David Goldstone has been appointed as the chair of the new Office for Value for Money, “to help us realise the benefits from every pound of public spending”.
Private schools
At present, private schools are eligible for tax breaks, which can include not paying business rates or having to charge VAT on fees. Reeves has already made it clear that she will use her budget to impose VAT and business rates on schools for the first time from January. The Institute for Fiscal Studies has predicted that the tax will raise between £1.3 and £1.5 billion a year.
Stamp duty
Second-home buyers will face a stamp duty land tax surcharge rise of two percentage points – to 5% – starting from Thursday. Ms Reeves said: “In our manifesto, we committed to reforming stamp duty land tax to raise revenue while supporting those buying their first home. “This will support over 130,000 additional transactions from people buying their first home, or moving home, over the next five years.”
Electric vehicles
Reeves said Labour wants to support take-up of electric vehicles. The Budget will maintain existing incentives for EVs in company car tax from 2028. It will also increase the differential between fully electric and other vehicles in the first rates of Vehicle Excise Duty beginning in April 2025, she says. The measure is forecast to raise about £400m by the end of the forecast period, she adds.
Air passenger duty
The Chancellor told the Commons: “Air passenger duty has not kept up with inflation in recent years so we are introducing an adjustment, meaning an increase of no more than £2 for an economy class short-haul flight. “But I am taking a different approach when it comes to private jets, increasing the rate of air passenger duty by a further 50%. That is equivalent to £450 per passenger for a private jet to, say, California?”