Chancellor Rachel Reeves has insisted she has not broken Labour’s election pledge on tax after announcing a Budget that raises £26 billion through frozen tax thresholds, new levies and changes to pension rules.
Reeves defended her decisions after critics accused her of hitting working households despite Labour’s promise not to increase income tax, national insurance or VAT rates.
Delivered on Wednesday, the Budget set the UK on course for a record tax burden as Reeves moved to plug gaps created by weaker economic forecasts. The measures are also intended to fund rising welfare costs, including Labour’s landmark decision to abolish the two-child benefit cap — a policy expected to lift 450,000 children out of poverty.
Addressing claims that she had breached Labour’s manifesto, Reeves said: “In the manifesto, it said we wouldn’t increase the rates of income tax, National Insurance or VAT. But I’m not denying that this is asking people to contribute a bit more.” She added that she had kept additional pressures “to a minimum” by targeting gambling companies and owners of properties worth more than £2m, as well as closing tax loopholes and improving public sector efficiency.
Reeves highlighted measures aimed at easing household pressures next year, including “£150 off their energy bills… freezes in prescription charges and also that freeze in train fares.”
Having abandoned earlier considerations of increasing income tax — a move that would have broken Labour’s manifesto — Reeves opted for a range of smaller revenue-raising measures. These include a pay-per-mile tax for electric vehicles, higher taxes on online betting and a “mansion tax” targeting homes valued above £2m.
Defending the approach, the chancellor said: “I did make what I believe are the fair and necessary choices to cut NHS waiting lists, cut the cost of living and also cut government debt and borrowing, which is so important for stability.”
She insisted that boosting economic growth remains Labour’s central priority, citing new trade deals and the forthcoming Planning and Infrastructure Bill — expected to receive Royal Assent next month — which she said would help speed up development “to get stuff built in Britain.”
The Budget presentation was disrupted when the Office for Budget Responsibility (OBR) accidentally published its economic forecasts before Reeves began her speech. The OBR apologised for what it described as a “technical error,” and chairman Richard Hughes said a full investigation was under way to “get to the fundamental causes and make sure it doesn’t happen again.” He pledged to “abide by the recommendations” — even if they were to call for his resignation.
Reeves confirmed the OBR chair had apologised directly, describing the incident as a “serious and significant” breach. She said she retained confidence in Hughes but stressed that a thorough review was necessary “to ensure that nothing like that ever happens again.”
Economists from the Institute for Fiscal Studies (IFS) and Resolution Foundation will give their full analyses on Thursday, but initial reactions suggest concerns over household finances. The Resolution Foundation warned that threshold freezes had contributed to downgrades in real household disposable income forecasts, while experts also cautioned that taxing pension contributions would reduce take-home pay and discourage retirement saving.
The IFS criticised the Budget as a “spend now, pay later” package, arguing that Reeves was relying “heavily” on tax rises scheduled close to the next general election. The thinktank expressed “scepticism” over whether the full range of tax plans would ultimately be delivered.
Conservative leader Kemi Badenoch attacked the Budget, calling it a “total humiliation” for Reeves and stating that “if she had any decency, she would resign.”
