Rachel Reeves has delivered her second budget to a packed House of Commons. On what was a very chaotic day in which the majority of the measures that were being laid out had already been leaked in an OBR report, MPs from all parties gathered to listen to the Chancellor’s analysis of how the economy was doing and see what measures were being put in place to try and improve it further. There were many areas covered from personal taxation to household bills. MP’s through out the chamber had already made a list of prepared questions following the leak and were adamant to get the answers.
It had been widely predicted that taxes would be raised to help cater for the growing deficit as well as cover the ever-growing benefits bill. Members from all parties were encouraging the Chancellor to do more to get people off benefits and in to work. There needed to be a change in attitude amongst the general public and more measures put in place to help make work pay and for being on benefits not to be a lifestyle choice.
Key Measures Announced in Budget 2025
Personal Taxation
National Insurance (NI) and income tax thresholds frozen for extra three years beyond 2028, dragging more people into higher bands over time
Amount under-65s can put into cash Isas (Individual Savings Accounts) capped at £12,000 a year from April 2027, with the rest of the £20,000 annual allowance reserved for investments
2 percentage point rise to the ordinary and upper tax rates on dividend income from April, and all rates on savings income from April 2027
Wages, Benefits and Pensions
Cap limiting households on universal or child tax credit from receiving payments for a third or subsequent child to be scrapped from April
Legal minimum wage for over-21s to rise 4.1% in April, from £12.21 to £12.71 per hour, with the wage for 18 to 20-year-olds rising from £10 to £10.85
Basic and new state pension payments to go up by 4.8% from April, more than the current rate of inflation, under the “triple lock” policy
Amount people can “sacrifice” from their salary – thereby avoiding NI on pension contributions – capped at £2,000 a year from 2029
Help to Save scheme, which offers people on universal credit a bonus on savings, extended and expanded beyond 2027
Housing and Property
Properties in England worth more than £2m to face a council tax surcharge of £2,500 to £7,500, following a revaluation of homes in bands F, G and H
Tax charged on rental income increased by 2 percentage points, from April 2027
Transport
5p “temporary” cut in fuel duty on petrol and diesel extended again, until September 2026, before it rises again over six-month period
A new mileage-based tax for electric vehicles and plug-in hybrid cars to be introduced from 2028
Regulated rail fares for journeys in England frozen next year for the first time since 1996 (there have been periods when prices rose by less than inflation)
Premium cars to be excluded from Motability scheme, which allows people on certain disability benefits to lease vehicles more cheaply
Business Taxes
Thresholds for NI paid by employers also frozen until 2031, increasing costs as wages rise over time
Tax exemption for small packages from overseas retailers’ worth under £135 scrapped from 2029, following complaints it hinders UK businesses
Remote gaming duty, paid on online casino betting, to rise from 21 to 40% from April 2026
General betting duty, paid on sports betting, to rise from 15 to 25% online from April 2027, with an exemption for horse racing
Household Bills
Green levies taken off energy bills and paid through general taxation, in a move the Treasury says will save households £88 a year
It says a further £59 saving will be made by scrapping a customer-funded scheme helping low-income households insulate their homes
Drinking and Smoking
Tax on sugary drinks extended to pre-packaged milkshakes and lattes from 2028, reversing an exemption when the tax was introduced in 2018
Tax on tobacco to increase by 2% above the higher RPI rate of inflation
Tax on alcohol, including draught drinks, will also increase by the higher RPI measure in February
UK Growth and Inflation
Office for Budget Responsibility (OBR) predicts the UK economy will grow by 1.5% this year, upgraded from a 1% forecast in March
But the economy is now forecast to grow by 1.5% on average between 2026 and 2029, down from the previous estimate of 1.8%
Inflation predicted to average 3.5% this year, before falling to 2.5% next year, and returning to the government’s 2% target in 2027
Other Measures
English regional mayors to be given powers to tax overnight stays in hotels and holiday lets, echoing existing plans in Scotland and Wales
Training for apprentice’s under-25 will be made free for small and medium-sized companies
Any 18 to 21-year-olds on Universal Credit not earning or learning for more than 18 months will be offered six-month paid work placements, and those not taking up the offer face being stripped of their benefits
Planned tax on English universities’ tuition income from overseas students will be charged at £925 per student per year, from August 2028
Cost of a single NHS prescription in England frozen at £9.90 for another year (they remain free in Wales, Scotland and Northern Ireland)
£5m will be dedicated to secondary school libraries and another £18m for improving and upgrading playgrounds across England
Infected blood compensation will be made exempt from inheritance tax
There was plenty of commotion in the chamber following the speech with many saying that the chancellor had broken the pledges she had made in her manifesto not to raise taxes for working people and that the budget was a total humiliation.
Many including leader of the opposition Kemi Badenoch slammed the chancellor stating that if she had any decency, she would resign. She also stated that she was the country’s worst ever chancellor.
Lou Haigh, a former Labour Cabinet minister, has called the OBR an “unelected institution dictating the limits of government ambition”. And just last week the Trades Union Congress accused the “unaccountable OBR” of being a “straitjacket on growth”.
