Reeves unveils tax rises and ends two-child benefit cap

Rachel Reeves has said she is "asking ordinary people to pay a little bit more" after unveiling £26bn of tax rises in a Budget that also saw her scrap the two-child benefit cap.

The chancellor extended a freeze on tax thresholds for an extra three years in a move that will drag millions into paying more tax.

But she said the biggest burden would fall on those "with the broadest shoulders" through higher taxes on property and savings, including a new tax on homes worth more than £2m.

She said the package - which also includes measures to tackle the cost of living - was the "right thing to do", but the Conservatives said she should resign for breaking a promise not to come back for more taxes.

Reeves used her second Budget speech as chancellor to say that there would be no "reckless borrowing" and no return to austerity under Labour.

She told MPs it was a budget for "for fair taxes, strong public services, and a stable economy".

The measures in it add up to £26bn in tax rises in 2029-30, which will bring the UK's tax take to an all-time high of 38% of national income in 2030-31, according to the OBR.

The watchdog also said the UK economy will grow at a slower rate than previously expected from next year.

Key tax increases include:

Instead of increasing the main rate of income tax, Reeves decided to plug a hole in spending plans with dozens of smaller tax rises and freezing tax thresholds, something she said last year would "hurt working people".

Almost one in four taxpayers will pay some of their tax at the higher rate by 2031, according to calculations by the Office For Budget Responsibility (OBR).

"I know that maintaining these thresholds is a decision that will affect working people, I said that last year and I won't pretend otherwise now," she told MPs.

"I am asking everyone to make a contribution. But I can keep that contribution as low as possible because I will make further reforms to our tax system today to make it fairer."

Reeves insisted she had stuck to Labour's election manifesto pledge not to increase VAT, income tax rates or National Insurance.

Speaking to reporters after her statement, she said: "I do recognise that I was asking ordinary people to pay a little bit more, but I've managed to keep that contribution as low as I possibly can by closing loopholes and asking those with the broadest shoulders to pay more."

Chaos erupted minutes before Reeves began her Budget speech, when the government's spending watchdog, the OBR, published key details of what was in it.

Reeves, who was told about the accidental leak by a frontbench colleague, said it was "deeply disappointing and a serious error on their part".

The OBR blamed a "technical error", and said it was launching an investigation into how the forecast document appeared on its website.

With Labour trailing in opinion polls and Sir Keir Starmer facing questions about his leadership, Reeves had been under pressure to deliver a Budget that went down well with Labour MPs and voters worried about the cost of living, without spooking the financial markets.

Labour MPs welcomed her decision to end the two-child benefit cap next April, which Reeves said would lift 450,000 children out of poverty.

Despite the name, it does not affect child benefit - but relates to tax credits and universal credit payments if you have or had a third or subsequent child born after 6 April 2017.

Reeves said the policy, introduced by the previous Conservative government, had "made almost no difference to the size of families" and had not cut the welfare bill "but it's kids who have paid the price".

She said she was scrapping green levies added to electricity bills by the previous government, which she said would cut £150 from household bills.

Other measures aimed at cutting the cost of living include a freeze on prescription charges and some rail fares in England.

Reeves was also under pressure to reduce the cost of government debt and increase the buffer she has against future economic shocks, known as headroom.

She told MPs debt would continue to fall as a share of national income and the amount of headroom will double to £21.7bn, which should bring some relief from market pressure.

In her Budget response, Conservative leader Kemi Badenoch said Labour should rename itself "the Welfare Party", adding: "All this Budget delivers is higher taxes and out of control spending."

Badenoch said the Budget was a "total humiliation" for Reeves, who should "resign".

"Last year she put up taxes by £40bn, the biggest tax raid in British history," she said.

"She promised that she wouldn't be back for more. She swore it was a one-off. She told everyone that from now on it would be stability, and she would pay for everything with growth.

"Today she has broken every single one of those promises."

Liberal Democrat leader Sir Ed Davey said: "Labour was elected on a promise of tackling the cost of living crisis and growing the economy - and this is the second Budget where it's failed to do either.

"For millions of people struggling with higher bills, all this budget really offers is higher taxes."

Speaking at a news conference, Reform UK leader Nigel Farage said: "I would very much sum up this Budget as an assault on aspiration and an assault on saving."

He added: "Working people are going to be subsidising a welfare bill that shows no sign of going down whatsoever."

The Green Party said the Budget "papers over the cracks" instead of taxing "extreme wealth fairly".

"The chancellor spoke about asking everyone to make a contribution, but it is frankly inexcusable that she has made the political choice to squeeze households already struggling with the cost of essentials, whilst letting multimillionaires and billionaires off the hook," Green Party Treasury spokesman Adrian Ramsay said.

The SNP said the Budget "fails to deliver" for Scotland.

Shona Robison said the Budget was "a chaotic mess" that failed to back Scottish jobs - and the announced funding £820m uplift would "not even cover half the cost of the employers' national insurance contributions brought in this year."

Government borrowing costs eased back and the pound strengthened after an initial sell-off sparked by the early release of the OBR forecasts.

But the Institute for Fiscal Studies think tank said the increase in "headroom" in the Budget forecasts relied on tax increases just before the next general election, which it said should be "treated with a healthy dose of scepticism".

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