Rachel Reeves has promised to make “fair and necessary choices” in the upcoming Budget, despite strong expectations of multiple tax increases. As Chancellor, she is set to deliver her second Budget on Wednesday, focusing on measures designed to address the ongoing cost-of-living crisis while balancing the need to maintain fiscal discipline and political support within her party.
Reeves is committed to reducing the government’s debt burden and plans to increase the margin above her borrowing targets to protect fiscal credibility. “Today I will take the fair and necessary choices to deliver on our promise of change,” she stated. She emphasized that she will neither revert to austerity nor lose control of public spending through reckless borrowing, while also pushing forward “the biggest drive for growth in a generation,” according to reports from the Manchester Evening News.
This Budget is expected to adopt a diversified approach to tax increases, described as a “smorgasbord” strategy. While initial plans to raise the headline income tax rate were shelved, partly due to improved economic forecasts and Labour’s manifesto commitments, Reeves is still focused on expanding the government’s fiscal headroom. Significant cuts to public spending are reportedly off the table, which means tax hikes will likely play the central role in closing the public finance gap.
READ MORE: NatWest Appoints Andrew Hunter as Managing Director of Venture Capital Coverage
READ MORE: Universal Credit Claimants to Receive Up to £1,200 Boost in Savings Scheme Extension
Among the considered measures is a freeze on income tax thresholds, which could push more taxpayers into higher brackets as wages rise, effectively increasing tax revenues without changing headline rates. There is also talk of limiting pension contributions made via salary sacrifice schemes before they become liable for national insurance.
Additional potential tax rises include a proposed mansion tax targeting properties valued above £2 million, a new gambling levy, and pay-per-mile charges for electric vehicles. These measures form part of a broader attempt to boost revenue without hitting income tax rates directly.
Addressing cost-of-living concerns, Reeves plans to abolish the two-child benefit cap, a policy change expected to cost between £3 billion and £3.5 billion by the end of the parliamentary term. Reports suggest she may also maintain the freeze on fuel duty, a move projected to cost approximately £3 billion.
On Tuesday, Reeves confirmed her acceptance of the Low Pay Commission’s recommendation to increase the minimum wage, representing a £900 annual pay raise for full-time workers aged 21 and over.
Meanwhile, protests are expected on Budget day from farmers unhappy with inheritance tax policies. However, the Metropolitan Police have banned tractors from being brought to Westminster during the protests.