UK Chancellor Rachel Reeves set out a 26 billion pound tax-raising Budget that will push Britain’s tax burden to its highest level since the Second World War.
The plans extend a freeze on income tax thresholds, cap pension perks, and add new charges on wealth and gambling, even as the government scraps a controversial cap on child benefits.
The Office for Budget Responsibility now projects that the tax-to-GDP ratio will climb to about 38 percent by the end of the decade, a new peak for the UK.
Labour argues that higher revenues are needed to stabilise the public finances after years of weak growth, while critics warn that the package risks squeezing households and business investment.
How does the Budget push UK taxes to a postwar record?
The core of the revenue plan is a long extension of the income tax threshold freeze, which quietly pulls more people into paying tax and nudges many into higher bands as wages rise.
Keeping thresholds fixed until 2031 is forecast to bring an extra 780000 people into the basic rate band and 920000 into the higher rate by 2029 30, raising around 8 billion pounds a year.
On top of that, Reeves confirmed steps to narrow pension tax breaks and to tap wealth more directly.
From April 2029, salary-sacrificed pension contributions that escape National Insurance will be capped at 2000 per year, a change the Treasury expects will raise about 4.7 billion, while new property and gambling levies will add further revenue.
Did you know?
For the financial year 2024/25, total UK public sector current receipts (including taxes and other income) are estimated to be around 39% of GDP.
What does the two-child benefit cap mean for families?
The Budget’s most symbolic social policy move is the decision to abolish the two-child benefit cap from April 2026, reversing a flagship measure from the Conservative era.
That cap blocked families from claiming universal credit or tax credits for a third or later child born after April 2017, and became a focal point in debates about child poverty and welfare fairness.
Treasury costings suggest scrapping the restriction will cost about 3 billion pounds annually by 2029 30, yet it is expected to lift around 450000 children out of poverty and increase payments for about 560000 families by an average of more than 5000 pounds a year.
Labour MPs welcomed the move as proof that the government is prioritising vulnerable households, and Reeves said her party does not see penalising children as a route to welfare reform.
Who pays more through frozen thresholds and new levies?
While low-income families with multiple children will gain, many workers face higher effective tax rates because of fiscal drag, the process where inflation and wage rises push people into higher tax bands when thresholds do not move.
Middle earners in particular will see a growing share of their pay taxed at the basic or higher rate, even if their real purchasing power barely improves.
Wealthier households are targeted through a new annual surcharge on high-value properties in England worth more than 2 million pounds, which will reach up to 7500 pounds from 2028.
The chancellor also announced new or higher duties on some gambling activities, arguing that sectors with strong profits should contribute more to sustaining public services, a stance business groups say could dampen investment and push up prices.
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How do weaker growth and higher inflation shape the plan?
The OBR updated its forecasts alongside the Budget, offering a slightly better near-term picture for 2025 but a weaker outlook over the rest of the decade.
Growth next year is now expected to reach about 1.5 percent instead of 1 percent, yet the projection for 2026 has been cut from 1.9 percent to roughly 1.4 percent, with annual growth then stuck near 1.5 percent through 2030.
Inflation is now expected to prove more persistent than previously hoped, with the watchdog raising its forecast to around 3.5 percent for 2025 and 2.5 percent for 2026, and only seeing a return to the Bank of England’s 2 percent target in 2027.
That delay increases pressure on real wages and feeds political concern that higher taxes could land just as many households are still struggling with elevated prices.
Will Reeves convince voters that high taxes are worth it?
To ease cost-of-living pressures, Reeves confirmed that fuel duty will stay frozen, the temporary 5p cut on petrol and diesel will be extended to September 2026, rail fares will be frozen again, and the minimum wage will rise by about 4.1 percent to 12.71 an hour from April.
Ministers say these steps will help offset some of the drag from higher taxes and slower growth on household budgets.
The opposition Conservative leader Kemi Badenoch branded the Budget a smorgasbord of misery and a humiliation for the government, calling for the chancellor to step down.
Business groups warned that the cumulative impact of tax rises could discourage hiring and investment, while Labour lawmakers hailed the end of the two-child cap as a defining choice to side with poorer families even in tight fiscal times.
Over the coming years, the success of Reeves’s strategy will be judged on whether higher revenues deliver visible improvements in services and living standards, and whether growth can rise above the modest rates now forecast.
If families feel the benefits of reduced child poverty and better public provision outweigh the pain of fiscal drag and new levies, the politics of a high-tax Britain could become more durable; if not, pressure for another fiscal reset is likely to build.
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