Rachel Reeves has announced a set of tax increases totaling £26 billion annually in a Budget that was leaked just before its official release. The Chancellor introduced a new mansion tax affecting properties valued over £2 million and confirmed the removal of the two-child benefit limit, a demand advocated by anti-poverty activists for years.
In a controversial move, income tax thresholds will be frozen, impacting over 1.5 million workers. The gambling sector will face new levies, while fuel duty will remain unchanged until the following year, as stated by Ms. Reeves during a tumultuous House of Commons session.
Key highlights from the long-awaited Budget include the implementation of a new tax on homes valued above £2 million, affecting an estimated 100,000 to 200,000 properties. This levy, ranging from £2,500 to £7,500 annually, is anticipated to generate approximately £400 million per year for the Treasury.
Furthermore, the Budget features a “high value council tax surcharge” on properties exceeding £2 million. According to the OBR, property owners identified with values over £2 million will face an additional recurring annual charge starting from April 2028, supplementing existing council tax obligations.
Another significant development is the removal of the two-child benefit limit, a policy criticized for exacerbating child poverty since its inception in 2017. The Treasury estimates that scrapping this limit will cost around £3 billion by 2029-30 but is projected to reduce child poverty by 450,000.
Additionally, the Budget outlines plans to raise £1.1 billion through reforms to gambling taxes, including a hike in remote gaming duty from 21% to 40% starting April 2026. A new general betting duty for remote betting at 25% will also be introduced in April 2027, excluding specific betting activities.
Moreover, the Chancellor announced the first rail fare freeze in three decades, benefiting existing rail passengers with savings totaling £600 million in the upcoming fiscal year across more than a billion train journeys.
Income tax thresholds will be frozen for an additional two years until 2030, leading to a higher number of individuals moving into higher tax brackets as their incomes increase. According to the OBR, these changes are anticipated to yield a total of £56 billion in 2030-31, with £12 billion attributed to the freezes announced in this Budget.
Furthermore, a new mileage-based charge on electric and plug-in hybrid cars is slated to commence in April 2028, generating an expected £1.4 billion for the Treasury. Additionally, the average household will witness a £150 reduction in energy bills from April, reflecting the Chancellor’s commitment to easing the cost of living for families.
In a bid to bolster worker wages, the National Living Wage will rise to £12.71 per hour for workers aged over 21 from April, benefiting around 2.4 million low-wage earners. The National Minimum Wage for 18 to 20-year-olds will also increase by 8.5% to £10.85 per hour.
Moreover, the Government will impose national insurance contributions on salary-sacrificed pension contributions, projected to raise £4.7 billion annually. Contributions exceeding a £2,000 threshold will no longer be exempt from April 2029, aligning salary-sacrificed contributions with standard employee pension contributions.
To combat obesity and safeguard children’s health, the tax on sugary drinks will be expanded by reducing the threshold for the Soft Drinks Industry Levy from 5g to 4.5g of sugar per 100ml. This change, effective from January 2028, aims to prompt manufacturers to lower sugar levels in their beverages or face the increased levy.
Lastly, Rachel Reeves confirmed a reduction in the annual cash ISA limit to £12,000 from April 2027 solely for younger savers. Individuals aged over 65 will remain unaffected by this cap, retaining the ability to save up to £20,000 annually in a cash ISA. Additionally, the tax rate on savings interest for other accounts will rise from April 2027.
The Budget also announced a new tax on overnight stays in accommodation, including hotels and Airbnbs, expected to increase costs by £2 per night, with funds allocated to regional authorities for local investment. Furthermore, £300 million will be invested in NHS technology to enhance patient services and establish 250 new neighborhood health centers by 2030, underlining Labour’s commitment to revitalizing the healthcare system.