Budget 2025: key points at a glance

The chancellor’s opening remarks were somewhat overshadowed by the fact that the Office for Budget Responsibility’s (OBR) assessment of her budget’s impact were accidentally published early, in an unprecedented gaffe that the shadow chancellor, Mel Stride, called “outrageous”.

As she stood at the dispatch box, Reeves opens by saying it was “deeply disappointing” and a “serious error on their part”, meaning the OBR.

“We are rebuilding our economy,” she says, pointing to trade deals with the US, India and the EU, planning reforms, an overhaul of the visa system and a change of fiscal rules to raise public investment to a four-decade high. She once again refers to the £22bn “black hole” in the public finances left by the Conservatives, saying that taxes on the wealthiest have helped close the gap and fund the NHS.

She criticises opponents who think the only good thing the state can do is “get out of the way”.

“Working people demanded and deserved change,” she says. “I said there would be no return to austerity and I meant it … I said I would cut the cost of living and I meant it … I said I would cut debt and borrowing and I meant it.”

Rowena Mason, Whitehall editor: Reeves has mounted a defence of her approach of sticking to her fiscal rules, and opting squarely for tax rises rather than spending cuts to balance the books.

Income tax and national insurance

• As expected, Reeves will freeze income tax and national insurance thresholds for another three years from 2028, continuing a freeze implemented by the previous government. This will bring more people into higher tax bands.

• Reeves admits this decision will “affect working people” but says new reforms to the tax system will ensure the wealthiest contribute the most.

• Basic rates of income tax, VAT and national insurance will not go up, which Reeves says means Labour has kept its manifesto pledge not to raise taxes on working people.

RM: A three-year freeze on income tax thresholds is slightly longer than was expected and is the single biggest tax-raising measure in the budget. It is considered a “stealth tax” measure as it is less noticeable and controversial than an increase in the headline rate of income tax, but millions of people will pay more tax as they are dragged into higher bands.

Property and council tax

• The basic and higher rates of tax on property, dividend and savings income will go up by two percentage points each.

• There will be a high-value council tax surcharge for properties worth more than £2m of £2,500 a year, rising to £7,500 for properties worth more than £5m.

RM: The changes to council tax will satisfy Labour MPs – and some unions – who have long been pushing for a mansion tax. However, it does not appear to be a huge revenue raiser, so some may think it should have gone further. There is some potential for gripes about the surcharge where it may distort the property market around the £2m mark – but it is much less likely to cause a headache for the chancellor than a full revaluation of the council tax system. The chancellor also set the cap at £2m rather than the original plan for a lower tax limit to avoid upsetting London voters where house prices are higher than the rest of the country.

Pensions

• From 2029, there will be a £2,000 cap on salary sacrifice into a pension, with contributions above that taxed in the same way as other employee pension contributions.

• Removing tax benefits from salary-sacrifice pension schemes is forecast to raise £4.7bn, the OBR says.

RM: This is a huge revenue raiser and chancellors have traditionally shied away from it, fearing a backlash. However, there is a fairness argument that can be applied to the idea of putting national insurance on pension contributions as pensioners do not pay it in the same way that they pay income tax. It will not hugely affect those earning lower and middle wages, but experts say it may affect behaviour of higher earners and see their cash spread into other investments instead if the tax benefits are less obvious.

Isa reform

• From 6 April 2027 the annual Isa cash limit will be set at £12,000, down from £20,000. The government will publish a consultation in early 2026 on the implementation of a new, simpler Isa product to support first time buyers to buy a home.

RM: The blow for savers has been softened by the fact that people will still be able to invest up to £20,000 in stocks and shares Isa. Those over 65 have also been exempted from the changes, as the government continues to woo pensioners in a bid to neutralise the hostility created by its decision to scrap the winter fuel allowance before partially U-turning.

Energy bills

• The energy company obligation (ECO) scheme introduced by the Conservatives costs families £1.7bn a year, according to Reeves and has actually cost families in fuel poverty more than it has saved. Reeves is scrapping it.

• She says £150 will come off bills next year as a result.

RM: This is a flagship measure to help people with the cost of living that the government will hope that people actually notice on their energy bills – without it being offset by rises in the cost of fuel. The main criticism will be that the ECO scheme helped low-income households insulate their homes – which is the best way of bringing down bills in the long term.

National minimum wage

• The minimum wage for 18- to 20-year-olds will go up from £10 to £10.85, while the living wage will go up from £12.21 to £12.71.

RM: A boost for low-paid workers is another measure to help people with the cost of living. It will also help increase income tax take, and will also put pressure on companies in sectors such as hospitality and care.

Tobacco and alcohol duty

• Nothing new here, as tobacco continues to rise at two percentage points above the retail prices index (RPI) measure of inflation, while alcohol goes up in line with RPI.

RM: Putting up taxes on harmful products each year is essential for the chancellor, as falling consumption of tobacco in particular shows revenue going down every year.

Milkshake tax

• Dairy-based drinks such as milkshakes and canned lattes are being added to the sugar tax. The levy will also be tougher overall, with the threshold for its application cut from 5g for each 100ml to 4.5g.

RM: The extension of the levy is a sign the government and health experts think this tax is working. It is targeted at stopping young people in particular getting hooked on sugary drinks that contribute to obesity and tooth decay. Critics of “sin taxes” will always say they erode personal choice and responsibility, but there are no signs that they are widely unpopular with the public.

Fuel duty

• Fuel duty has once again been frozen for another five months at least, until September 2026. The rate has been frozen since 2010-11. It will go up with inflation after that, ending 15 years of freezes.

RM: Fuel duty has long appeared to be the politically impossible tax to raise, despite the effects of fossil fuels on the environment. It has been frozen for more than a decade after campaigning by motorists’ groups and newspapers such as the Sun. Reeves’s focus on the cost of living means that will continue for another five months – but it is poised to rise after that. There is still scope for Reeves to cancel that rise at the spring statement, but this could be the start of the process by which it finally goes up.

Electric vehicles

• As expected, there will be new excise duty on electric cars, payable alongside vehicle excise duty, at 3p a mile for electric cars and 1.5p for plug-in hybrids, to help double funding for road maintenance in England.

RM: The small print from the Office for Budget Responsibility suggests that this will discourage electric car take-up. However, it will eventually raise about £1.9bn a year – and work towards solving the long-term problem of lower receipts from fuel duty as the UK moves towards greener vehicles.

Schools and the NHS

• Repeating what was in the spending review, Reeves refers to an extra £5m for secondary school libraries and £18m to upgrade playgrounds.

• She promises a saving of £4.9bn from a variety of efficiencies will be spent on more nurses and GP appointments, together with £300m of investment in tech to improve patient services and 250 new local patient health centres.

RM: Reeves has not talked much about what her £26bn of tax rises will be spent on – aside from increasing headroom. But the government is investing more in public services from the NHS to schools as set out in the spending review, and the chancellor is very clear that the age of austerity is over.

Welfare and apprenticeships

• Reeves claims 15,000 people will get back into work, a figure confirmed today, due to reforms to universal credit.

• About £300m of taxpayer subsidies will be removed for those using their disability benefits to drive Motability vehicles – including imposing VAT on payments for higher-value cars and ending relief from insurance premium tax.

• There will be funding to make sure that apprenticeships are free for small and medium-sized enterprises.

RM: Reeves has shied away from making deep cuts to the welfare bill after an outcry from Labour MPs. The proposed end to tax breaks to the Motabliity scheme have the potential to cause a further backlash among Labour MPs and disability groups as it will make it more expensive for disabled people to access the scheme.

Two-child benefit cap

• “The biggest barrier to equal opportunity is child poverty,” says Reeves, as she abolishes the two-child cap on child benefit, costing £3bn by 2029-30.

RM: This part of the budget has got the loudest cheers from Labour MPs. Reeves and Keir Starmer had held out against lifting the limit, believing it was not affordable – and even removed the whip from MPs who voted to get rid of it. It means their decision to lift it now has huge political symbolism – showing that Reeves is taking a measure in keeping with Labour values to tackle child poverty – helping 450,000 children and worth £5450 to low-income families. While Labour will be ecstatic that the hated cap is gone, the Conservatives will go on the attack over the decision, saying it is a sign that Reeves is increasing spending on welfare at a time when she is raising taxes on workers.

Growth and inflation forecasts

• The Office for Budget Responsibility (OBR), in a document released early in what appears to be an extraordinary blunder, is predicting growth of 1.5% for this year, up from the 1% it predicted in March. After that, the forecast is for 1.4% next year and 1.5% every year thereafter until 2030. That means that every year from 2026 has been downgraded. Previously, forecasts were for 1.9% in 2026, then hovering between 1.7% and 1.8%.

• Inflation appears to be running very slightly hotter than predicted in March, coming in at 3.5% this compared with a forecast of 3.2%, then 2.5% in 2026 (up from 2.1%). Thereafter it is as you were, at 2% every year.

RM: The growth figures for this year are relatively positive for the chancellor who fought the election on the basis that Labour would improve national prosperity. However, the years after that are looking worse than expected. Reeves gets round this by saying she expects to beat the forecasts in future.

On top of that, the inflation figures will be a worry as voters are very concerned about the cost of living and rising prices are a very obvious way in which they feel a squeeze on their household finances in daily life. Reeves has repeatedly said she will tackle inflation but the budget does not appear to have many measures to grip this.

Government borrowing

• Borrowing in 2025-26 is predicted to be £138.3bn, falling to £112.1bn the year after, then £98.5bn in 2027-28, £86.9bn, £67.9bn in 2028-29 and £67.2bn in 2030-31. That means borrowing is slightly higher next year, but it is predicted to be lower than forecast in March by the end of the period, in 2030.

• She says the UK will cut debt more than any other G7 economy during the period, with the government finances reaching a surplus of £3.9bn in 2029, £21.7bn the year after and £24.6bn the year after that.

RM: Reeves has made reducing borrowing a priority to bring down the amount of debt interest being paid and debt to GDP will fall in every year of the forecast. In keeping with her insistence that she will stick to her financial rules, the chancellor has resisted the calls of those within her party who think she should be borrowing more to invest – in defiance of the jitters of financial markets.

Gambling duty

• Shares in gambling companies plunged even before the chancellor stood up, after the accidental release of Office for Budget Responsibility (OBR) forecasts revealed big rises in online gambling duty, aimed at raising £1.1bn by 2029-30. The figure would be higher, £1.8bn, but the government expects some customers to bet less and admits that others are likely to switch to the illicit market, as the extra duty is passed on to consumers in the form of less attractive bonuses and odds.

• From April 2026, remote gaming duty (RGD), levied on online casinos, will rise from 21% to 40%, a rise that some in the industry have said will render some businesses unprofitable and cost thousands of jobs. Bingo duty of 10% is abolished.

• There will be a new online-only rate of general betting duty, which is levied on operators’ income from sports betting. High street bookies will still pay the current rate of 15% but for online, the duty will rise to 25%, with a carve-out for horse racing. Casino gaming duty bands will be frozen.

Devolution and regions

• There will be £13bn of flexible funding for seven mayors to invest in skills, business support and infrastructure.

• An additional £370m for the Northern Ireland Executive, £505m for the Welsh government and £820m for the Scottish government.

• Wales will be the host for two “AI growth zones”, creating more than 8,000 jobs, supported by a £10m investment in the semiconductor sector.

• In Scotland, there will be £14m for low-carbon technologies in Grangemouth, £20m to renew infrastructure in Inverclyde and £20m to redevelop Kirkcaldy town centre and seafront.

RM: Labour is facing difficult elections next year in Wales, where it is threatened by Plaid Cymru and Reform, and in Scotland against the SNP. Reeves devotes quite a long passage in her speech to how the government is spending more in Scotland and Wales, where she flags new AI zones bringing jobs.

Energy

• Reeves promises to cut red tape holding back investment in nuclear power investment, based on a report by John Fingleton.

RM: The push for nuclear energy does seem finally to have some new vigour under Ed Miliband as energy secretary but it has suffered years of delay and indecision that make it hard to take promises of red tape being slashed seriously.

Business taxes

• There will be an expansion of entrepreneurial investment schemes and there will be relief for UK stock market listings, with a three-year exemption from stamp duty.

• Reeves is also launching a consultation on how to attract more entrepreneurs. “If you build here, Britain will back you,” she says.

• There will be a 40% allowance to allow businesses to write off more of their upfront investment costs.

• There will be permanently lowered business rates for 750,000 retail, hospitality and leisure businesses, paid for higher rates on properties worth more than £500,000, used by “warehouse giants”. There will be £4.3bn of support for properties that receive a large increase in their bill.

• Customs duty will apply to parcels of any value, to stop online retailers undercutting high street retailers on price.

Other measures

• Reeves will exempt payments from the compensation scheme for the infected blood scandal from inheritance tax.

• Capital gains tax relief on shares sold by business owners will be cut in half. The decision to restrict employee ownership trust capital gains tax relief from 100% to 50% comes because the scheme is on course to cost £20bn, 20 times the original estimate.

• “Choices” is the theme of Reeves’s speech. As she closes she refers to “my choices, not austerity, not reckless borrowing, but cutting tax, cutting waiting lists and cutting the cost of living. Those are Labour choices, promised and delivered by this budget promised and delivered by this Labour government.”

RM: Reeves will be breathing her biggest sigh of relief that the gilt markets have not reacted badly to her budget, meaning no jump in the cost of government borrowing. Her second confidence boost will come from Labour MPs, who were extremely happy about the end to the two-child benefit limit for universal credit that kept children in poverty. As for the wider public, many voters may be relieved that there was no income tax rise and only the wealthiest will be affected by the mansion tax, while lower energy bills will also be good news for households. Given the measures were less drastic than first briefed, it remains to be seen whether the Conservative attacks on the chancellor for the overall £26bn package of tax increases while raising benefits will have much cut-through.