British Chancellor Rachel Reeves presented her second budget on Wednesday. She tried to reduce the cost-of-living pressure and boost investment. Her tax hikes, however, overshadowed almost every other announcement.
The UK is struggling with high inflation, slow growth, and a large budget deficit. Reeves needed to support the economy without increasing inflation. She also needed to strengthen public finances.
She offered a mix of tax hikes, higher public investments, lower energy bills, and an extension of the fuel duty cut.
Critics attacked her. They said she broke the Labour Party’s election manifesto by raising taxes. They also reminded her that she raised taxes by around £40 billion last year.
Reeves announces a £26 billion tax hike
Reeves increased taxes by about £26 billion up to 2029-30. This move pushes the UK’s tax burden to 38% of GDP, the highest level in modern history.
She extended the freeze on income tax and national insurance thresholds for three more years. Salaries will rise, but thresholds will stay the same. As a result, more than 1.7 million workers will enter the tax system or move into a higher bracket. Experts call this “taxation by stealth”.
Reeves also targeted wealthy property owners. She introduced a council tax surcharge on homes worth more than £2 million.
She raised taxes on dividends, savings, and property income by 2%.
Budget aims to fight inflation and revive growth
Reeves announced steps to reduce household costs. She said she will cut energy bills by about £150 from April 2026. She will end the Energy Company Obligation (Eco) scheme and fund 75% of the Renewables Obligation to achieve this.
Reeves froze regulated train fares for one year. She also froze prescription charges under the NHS. She extended the 5 pence per litre fuel duty cut as well.
The government said these measures could reduce inflation by 0.4 percentage points.
Reeves chose targeted price cuts instead of demand-focused policies. She said reducing demand too sharply would slow growth. This is why she focused on lowering bills and fares.
Reeves promises record public investment
Reeves pledged up to £120 billion in public investment. She said this will lift public investments to the highest level in four decades. She argued that this spending will support long-term growth.