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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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
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.
Q: How embarrassed and ashamed are you of today’s leak?
We’ve apologised for it, OBR chair Richard Hughes replies.
It’s not something that we like to happen. It was an accident. We will do an investigation and abide by its conclusions, he adds.
OBR chief Richard Hughes declines to say whether the Treasury ever told it there would be a rise in income tax in today’s budget.
He says the OBR never comments on “policy under development”, only on the final decisions.
[Reminder: the Treasury and the OBR conduct a back-and-forth process where Downing Street makes various proposals, and the fiscal watchdog assesses the impact.
There were initially reports that Reeves would hike income tax rates, followed by an apparent a u-turn in mid-November].
Campaigners dismiss ‘mansion tax’ as ‘superficial fix’, as Treasury says it is only set to raise £430m
Here is the Treasury paper explaining how the high value council tax surcharge (HVCTS) – aka the “mansion tax” – will work. It will be based on property values in 2026, and it will come into effect from April 2028.
It will be paid by homeowners, not occupiers. And it will operate alongside council tax, not as a replacement.
The Treasury says fewer than 1% of homes are expected to be above the £2m threshold.
Here is the chart showing how much people will pay, based on the value of their home.
The money will go to central government, not to councils.
Given the UK’s obsession with property (and the fact that senior people in the media tend to own expensive homes), this is likely to attact a lot of controversy.
But the revenue to be raised is surprisingly modest. “The HVCTS is estimated to raise around £430m of revenue per year from 2028/29 to support funding for local government services,” the Treasury says.
And some campaigners are saying Rachel Reeves has ducked the opportunity for more significant reform.
Andrew Dixon, founder and chair of Fairer Share, which campaigns for a proportional property tax, said:
The chancellor has missed a critical opportunity to enact the meaningful, long-overdue reform that our broken council tax system desperately needs. Revaluing the top bands is an acknowledgment that the system is outdated, yet the refusal to launch a comprehensive review of UK property taxes leaves the job unfinished – and millions of people continue to face an unfair, regressive system.
Adjusting the top bands is nothing more than a superficial fix. The chancellor herself referenced the problem, a Band D house in Darlington can still pay a higher rate of council tax than a mansion in Kensington. Even with a surcharge of £7,500, a £5m mansion would pay just 0.19% of its value in council tax. That rate is more than five times lower than what families in Darlington face.
And this is from Faiza Shaheen, executive director at Tax Justice UK.
Britain’s economy needed a total renovation, but what we got was a cheap paint job to cover the cracks in the foundations. After all the talk about fairness, this budget disappoints from a tax justice perspective.
It is shocking that the biggest revenue raising measure in this budget, that should have been about taxing the super-rich more, will be a freeze on income tax thresholds that will make working people worse off.
Even the proposed mansion tax, which is a step in the right direction, is a messy half measure and raises a relatively small amount.
Will OBR chief resign over damaging release of its EFO?
The Office for Budget Responsibility is fielding questions from the press about the accidental release of its Economic and Fiscal Outlook today, before the chancellor had delivered the budget.
Jon Craig of Sky News asks whether OBR chief Richard Hughes will carry the can for this unprecented error.
Craig reminds Hughes of previous budget leaks:
Q: A chancellor of the exchequer resigned for less. This leak today is more damaging than Hugh Dalton in 1947, who quit, or the budget leak to the Mirror in 1996. Have you offered to resign? If not, why not?
Richard Hughes replies that the document was unintentially uploaded to the OBR’s website too early. There is an investigation into what happened, which will report to the OBR’s oversight board, the Treasury and the House of Treasury committee, and he will abide by their recommendations.
[reminder, Hugh Dalton blundered by telling political journalists the content of his budget; they published before he’d given the speech]
Q: So if they say you should resign, you’ll go?
Hughes indicates he would, replying:
I will abide by their recommendations, and I always serve so long as I have the confidence of the chancellor and the Treasury committee.
Q: Do you know how it happened?
Hughes says he won’t preempt the investigation.
He says the OBR understands how it happened, but want to get to the fundamental causes and make sure it won’t happen again.
Q: Has anyone been disciplined?
Hughes replies that the OBR has been focused on getting the EFO out at the right time, and will publish the investigation once it is finished.
But he confirms that the mistake was made within the OBR.
The OBR point out that Rachel Reeves has lifted her budget headroom back to average levels.
The new £22bn margin against the current balance target is close to the average revision to our pre-measures forecast between fiscal events in the fourth year of the forecast, at £21bn, Richard Hughes explains.
That means there’s more chance of meeting the fiscal rules, which should reassure financial markets.
And Hughes also cautions that even if the UK actually cuts borrowing as targeted by the fiscal rules, it would only lower the deficit to levels that the average advanced economies achieved several years.
And he cautions that this wouls only stabilise debt/GDP ratios at a high level, of around 96% at the end of the decade, adding:
And we would still be devoting more of our national income to paying the interest on that debt than at almost any time in our post-war history.
Treasury claims poorest 10% of households will benefit most proportionately from budget
When Rachel Reeves addressed Labour MPs on Monday, she told them that it would be a Labour budget, because rich people would contribute most. “When you look at the distributional analysis you’ll see this is … a progressive budget, a budget I’m proud of,” she said.
Here is the chart Reeves was referring to.
On the basis of this, Reeves has appeared a near-perfect progressive outcome. The poorest 10% of households gain most as a proportion of household income (more than 7%), with households proportionately gaining less as they get wealthier, and only the richest 10% losing out.
If you just look at the impact of the tax changes, the picture is different. The poorest 10% lose out more proportionately than other deciles, apart from the wealthiest 30%.
But the welfare changes (particularly getting rid of the ECO – see 1.38pm) do help the poorest families disproportionately.
And the Treasury only gets the graph to look like a ski slope by including “benefits-in-kind from public services” – extra spending on services like the NHS, which tend to benefit poorer families proportionately more.
On borrowing, the OBR say the near-term loosening in today’s budget shifts back the weight of the planned fiscal consolidiation by a year (compared to March’s forecasts).
[this is because it now takes longer to create a current budget surplus, as shown in the table posted earlier].
This consolidation is more tax-heavy too – three quarter of the planned cuts to borrowing come from tax.
That compares with two-third tax, one-third spending, outlined in last year’s budget.
OBR chief Richard Hughes then explains that the productivity performance of the UK has continued to undershoot the watchdog’s forecasts, despite several significant downgrades since 2010.
Thus, the OBR has concluded that the sharp rebound it expected is unlikely to materialise, so it has downgraded its long-term forecast for productivity to 1%, down from 1.3%.
[that is significantly lower than the pre-financial crisis decade (1998-2007) average of 2.1%]
Hughes also flags that the OBR has revised up its forecast for earnings growth, and inflation, in the near term – they are both important drivers of its fiscal forecasts (especially when income tax thresholds are frozen).
The Office for Budget Responsibility are presenting their Economic and Fiscal Outlook now.
Richard Hughes, head of the OBR, begins with an apology, repeating what the OBR said shortly after the error occured (see earlier post).
He says:
A link to our economic and fiscal outlook document went live on our website too early this morning, and was subsequently removed.
We apologise to the chancellor and members of parliament for this technical error, and have initiated an investigation into how this happened.
It’ll be reporting to our oversight board, the Treasury, and the Commons Traasury committee on how this happened, and how to make sure it doesn’t happen again.
The Institute for Fiscal Studies says taxes have risen more in this parliament than in any other parliament since the 1970s.
Normally, as an election approaches, governments start to cut taxes. Perhaps Labour is still hoping to do that before 2029. But there are not many people in the party who believe scope for significant tax cuts will open up before the election.
