Rachel Reeves has confirmed a freeze in income tax thresholds will be extended as part of a package of £26bn tax hikes, as she also scrapped the two-child benefit cap.
Salary sacrifices into pensions above £2,000 will be taxed while the annual cash ISA allowance will be capped at £12,000, the chancellor also revealed in her eagerly-awaited Budget speech.
The tax hikes come as Ms Reeves battles a downgrade in forecast economic growth, delivered in a report by the Office for Budget Responsibility (OBR) published by mistake before the speech.
Ms Reeves told the Commons: “I am asking everyone to make a contribution.”
Other measures announced include drivers of battery electric cars facing a 3p per mile tax from April 2028 and a high-value council tax surcharge on properties worth more than £2 million.
The two-child benefit cap being removed at an estimated cost of £3 billion by 2029/30.
Tory leader Kemi Badenoch said the package of measures were a “smorgasbord of misery”. She added: “Labour are hiking taxes to pay for welfare. This is a Budget for Benefits Street, paid for by working people.”
Shelter: Budget ‘cold comfort’ for families on brink of losing homes
Homelessness charity Shelter is one of a number of organisations reacting to the chancellor’s Budget todya.
Sarah Elliott, chief executive of Shelter, said the Budget is “cold comfort” to families on the brink of losing their homes.
“The Chancellor raised the scandal of children in damaging temporary accommodation, but the failure to unfreeze local housing allowance rates will condemn thousands to another grim winter without a secure home,” she said.
“Even more people will find it impossible to either avoid or escape homelessness in the months ahead unless the government throws them a lifeline.
“Housing benefit is meant to help struggling families afford a roof over their heads, but it’s too far out of sync with the real cost of renting. For the government’s upcoming homelessness strategy to help children out of temporary accommodation, it must do the right thing and unfreeze local housing allowance.”
Budget labelled ‘continuation of austerity’ by union chief
Some unions have been highly critical of the Budget, with one leader describing it as a continuation of austerity.
The Fire Brigades Union said there are “significant gaps” in public sector funding and a wealth tax it believes is needed to tackle the cost-of-living crisis.
General secretary Steve Wright said: “Firefighters, like all public sector workers, have waited years for a Budget that starts to turn the page on austerity. Although there are steps in the right direction, significant gaps remain that must be addressed if our public services are to be rebuilt.”
He added that the Budget is “a continuation of austerity”.
Unite general secretary Sharon Graham said: “The Chancellor has picked a side. Health workers, engineers, and tanker drivers will pay by stealth taxes, while City bankers and billionaires are unscathed.”
Unite said its analysis shows the decision to freeze income tax thresholds will result in an additional 10 million workers paying the higher rate of income tax.
Chart displays how Budget will impact poorest to wealthiest
Budget will push rents up, landlords say
Landlords have warned Rachel Reeves’ Budget will likely drive up rents – as the rates of income tax from property income will increase.
“Despite claims of tackling cost of living pressures, the Government is pursuing a policy that the Office Budget Responsibility has made clear will drive up rents,” Ben Beadle, chief executive of the National Residential Landlords Association said.
“Almost one million new homes to rent are needed by 2031. But this Budget will clobber tenants with higher costs while doing nothing to improve access to the homes people need.”
Full Fact analysis: The impact of scrapping the two-child benefit limit
Full Fact reports:
The Chancellor has just announced that the two-child benefit limit is to be scrapped in full from April.
It comes after senior Labour figures, including Bridget Phillipson and Lucy Powell, called for an end to the two-child benefit limit—a policy which prevents most families from claiming means-tested benefits for a third and any additional children born after April 2017.
Government data published in July 2025 estimated that 453,600 households were not receiving the child element of Universal Credit for at least one child because of the policy. The report found there were more than 1.6 million children living in these households.
A number of experts including from the Resolution Foundation and Institute for Fiscal Studies have said that removing the limit would be the most “cost-effective” way to reduce child poverty.
The Child Poverty Action Group estimates scrapping the policy would lift 350,000 children out of relative poverty “instantly” and stop a further 150,000 children being drawn into poverty by 2029/30.
According to the leaked OBR forecast, scrapping the policy will increase Universal Credit payments for an estimated 560,000 families by an average of £5,310 per year by 2029/30.
Analysis: The most chaotic Budget process in living memory ends in a shambles
The accidental leak of details of Rachel Reeves’ Budget by the Office for Budget Responsibility before she got to her feet was one final bit of chaos for this make-or-break Budget, says political editor David Maddox.
Read the full story here:
Chancellor bracing for raft of reaction to Budget
MPs are currently reacting to the chancellor’s Budget in the Commons, but the majority have left the chamber.
Focus will now shift to reaction from markets, business and campaigners.
They will be analysing the Rachel Reeves’ announcements, though the majority were leaked prior to today.
‘Budget for Benefits Street’: Tories react to chancellor’s statement
Kemi Badenoch said Rachel Reeves had raised taxes to pay for welfare in an announcement she termed a “Budget for Benefits Street”.
The Conservative leader cited the name of a Channel 4 show from the 2010s which focused on life on a street in Birmingham as she said workers would be paying for handouts.
Mrs Badenoch said the package of measures were a “smorgasbord of misery” from the Chancellor.
She said: “Today she has announced a new tax raid of £26 billion. They’re all cheering. Household income is down. Spending policies in this Budget increase borrowing in every year. That smorgasbord of misery we have heard from her can be summed up in one sentence. Labour are hiking taxes to pay for welfare. This is a Budget for Benefits Street, paid for by working people.
“This Budget increases benefits for 560,000 families by an average of £5,000. They are hiking taxes on workers, pensioners and savers to pay for handouts to keep their backbenchers quiet.”
Mrs Badenoch was heckled by Labour backbencher Jonathan Brash (Hartlepool), who shouted the Government was “taking children out of poverty”.
The Tory leader continued: “They can chunter all they like. These are the same backbenchers who cheered last year when she taxed jobs and left more than 100,000 people without an income.”
Kemi Badenoch calls on Rachel Reeves to quit over broken promises
The Independent’s political correspondent Caitlin Doherty reports:
Kemi Badenoch has called on Rachel Reeves to resign over broken manifesto promises.She told the Commons: “Last year she put up taxes by £40 billion, the biggest tax rate in British history.“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. If she had any decency, she would resign.”Labour’s manifesto last year promised no increases to income tax, national insurance or VAT.
Labour announcing ‘distractions’ while they ‘steal your wallet’, Badenoch claims
Kemi Badenoch has hit out at Rachel Reeves for implementing stealth taxes after her Budget.
Quoting the chancellor’s promise last year to not extend the income tax threshold freeze, the Tory leader said: “Today she has done exactly that, why should anyone believe anything she’s promised in this Budget.
“So where is the money going? Small changes to rail fares and prescriptions. These are distractions while she steals your wallet.
“The real story here is that Labour has lost control of welfare spending.”
