Rachel Reeves delivered the second Labour Budget of the Parliament, framing it as a decisive break from “austerity” while sticking rigidly to her self-imposed fiscal rules.

The central message: higher public investment, no return to cuts, debt and borrowing falling as a share of GDP, and a “fairer” tax system where the wealthiest and certain sectors contribute more.

Key Macroeconomic Points

• OBR upgraded 2025 growth from 1.0% to 1.5%; average growth over the forecast ~1.5% (long-term productivity was downgraded by 0.3pp to 1%).
• Borrowing falls every year; net financial debt peaks then declines by the end of the forecast.
• The stability rule (day-to-day spending covered by tax) was met a year early with £21.7bn headroom.
• £16bn less tax receipts by 2030 because of lower productivity forecasts.

Big Fiscal Headlines

• No increases in the main rates of income tax, employee national insurance, or VAT.
• Personal allowance and higher-rate thresholds frozen for another three years beyond 2028 (a continuing “stealth” tax rise).
• Debt falling, investment protected, and NHS and capital spending maintained at high levels.

Major Tax-raising Measures (designed to be “fairer”)

• National Insurance-style tax on investment income: basic/higher rate +2p, additional rate +2p on property, savings, and dividends.
• New High-Value Council Tax Surcharge from 2028: £2,500–£7,500 annually on homes worth >£2m–£5m.
• Pension salary-sacrifice cap at £2,000 from 2029.
• Gambling: Remote Gaming Duty up from 21% to 40%; general online betting from 15% to 25%; Bingo Duty abolished.
• Business rates are permanently lower for high-street retail/hospitality/leisure, paid for by higher rates on large distribution warehouses.
• EV road pricing: new per-mile VED (3p/mile for pure EVs, 1.5p for plug-ins).
• Various anti-avoidance and relief reforms (non-dom tightening, trust caps, etc.).

Big Spending and Relief Announcements

• Two-child benefit limit fully abolished from April 2026 → 450,000 children lifted out of poverty.
• “Rape clause” scrapped.
• £150 off average household energy bills from April 2026.
• State pension: +4.8% (£440–£575 a year); National Living Wage to £12.71; NMW (18–20): £10.85.
• Fuel duty 5p cut extended to Sept 2026; there is a new “Fuel Finder” scheme.
• Bus fare cap extended; rail fares frozen; prescription charges frozen.
• £300m NHS tech investment + 250 new Neighbourhood Health Centres.
• Major infrastructure commitments (Lower Thames Crossing, Midlands Rail Hub, Transpennine, Northern Powerhouse Rail, Sizewell C, SMRs in Wales, etc.).
• Significant devolution packages and regional funds.

Welfare and Efficiency

• Crackdown on welfare fraud/error, tax avoidance, excess asylum hotel profits, and gig-economy non-compliance → ~£10bn a year by 2030.
• The Motability scheme was reformed (luxury cars removed).
• Overseas pension/NI contribution access tightened.

Reeves unveils “no return to austerity” Budget as two-child limit is axed and energy bills cut £150. Rachel Reeves used her second budget to declare the era of austerity officially over, abolishing the two-child benefit cap, cutting household energy bills by £150 and freezing a string of everyday costs, while insisting the public finances remain on a stable footing.

In a lengthy Commons statement that repeatedly attacked the legacy of 14 years of Conservative government, Britain’s first female Chancellor said Labour had delivered the “biggest reduction in child poverty in a single Parliament since records began” by scrapping the controversial limit from April 2026. An estimated 450,000 children will be lifted out of poverty.

The widely criticised “rape clause” requiring victims to prove non-consensual conception is also abolished.

Borrowing and debt will fall in every year of the forecast, Ms Reeves said, with the Office for Budget Responsibility confirming the government is meeting its fiscal rules a year early and with £21.7 billion of headroom. Public investment remains at its highest sustained level in decades, with major projects such as the Lower Thames Crossing, Northern Powerhouse Rail and new small modular reactors all funded.

Tax rises focused on wealth and certain sectors rather than employees’ payslips. National Insurance-style taxation will be extended to investment income, high-value homes will face a new council tax surcharge from 2028, online gambling duties will almost double, and electric car owners will eventually pay a new per-mile charge.

The personal allowance and higher-rate threshold freeze – described by critics as the biggest tax rise in history – is extended for another three years.

“These are my choices,” Ms Reeves declared. “Not austerity. Not reckless borrowing. But cutting the debt, cutting waiting lists, cutting the cost of living.”

Households will see immediate relief through a £150 energy bill reduction, an extended 5p fuel-duty cut, frozen rail fares, bus fare caps and prescription charges, and a £440–£575 boost to state pensions under the triple lock.

Business received a permanently lower business-rates multiplier for high-street shops, pubs and restaurants (paid for by higher rates on large warehouses), continued full expensing, and a string of pro-enterprise measures. However, the British Retail Consortium warned the online warehouse charge could simply be passed on to consumers.

The Chancellor hailed upgraded growth figures, new trade deals and planning reforms as proof Labour’s supply-side agenda is working, despite the OBR downgrading long-term productivity expectations.Shadow Chancellor Mel Stride called the package “more sticking plasters on a broken economy” and accused Labour of “tax, borrow, spend”.

 Liberal Democrat leader Sir Ed Davey said the Budget “fails to reverse the damage done to public services”.

With the OBR forecasting inflation 0.4 percentage points lower next year as a direct result of the measures, Ms Reeves claimed vindication for her strategy of “stability, investment and reform”.

Whether voters feel the same when the tax rises and threshold freezes fully bite will be one of the defining political questions of this Parliament.