From mansion tax to cash ISA changes: Key announcements in Reeves’ Budget

After months of speculation and briefings, Rachel Reeves has unveiled £26bn worth of tax rises in her much-anticipated Budget.

But in an unprecedented leak just minutes before the chancellor got to her feet, the Office for Budget Responsibility (OBR) published its response to the statement, leaking her entire plan before she even had a chance to unveil it.

The tax hikes, which will leave her with £22bn in fiscal headroom, come on top of the £40bn of tax rises unveiled last year and are set to be delivered by freezing personal tax thresholds and a host of smaller measures. It brings the tax take to an all-time high of 38 per cent of GDP in 2030-31.

Here are the key takeaways from the chancellor’s long-awaited – but much-trailed – budget.

The OBR has predicted that economic growth will be weaker than expected from 2026 to the end of the current Labour government, despite having increased its forecast for economic growth this year from 1 per cent to 1.5 per cent.

In 2026, growth has been downgraded from 1.9 per cent to 1.4 per cent; in 2027 from 1.8 per cent to 1.5 per cent; in 2028 from 1.7 per cent to 1.5 per cent and in 2029 from 1.8 per cent to 1.5 per cent.

The news will come as a blow to the Labour government, which has put economic growth at the heart of its mission in office.

More than 1.7 million people face paying more income tax as she froze thresholds until 2030-31, meaning people will be dragged into paying for the first time or shifted into higher bands as earnings increase.

The OBR said the freeze would result in 780,000 more people paying the basic rate, 920,000 more the higher rate and 4,000 more additional-rate income tax payers in 2029/30. The body also estimated this will raise around £7.6bn by 2029/30.

Ms Reeves acknowledged the freeze in tax thresholds would hit “working people” – the group Labour had promised to protect – but she was “asking everyone to make a contribution”.

Pension contributions made under salary sacrifice schemes of more than £2,000 per year will now be hit with national insurance contributions from 2029, for both employers and employees, the chancellor announced.

The move is expected to raise £4.7bn in 2029/30 and £2.6bn in 2030/31. At the moment, there is no limit.

All properties worth more than £2m will be slapped with a new property tax of around £4,500. According to the OBR, “from April 2028, owners of properties identified as being valued at over £2m by the Valuation Office [in 2026 prices] will be liable for a recurring annual charge which will be additional to existing council tax liability”.

The document says that there will be four price bands, starting from a £2,500 charge for properties worth between £2m and £2.5m, and rising to £7,500 for properties worth £5m or more.

Rachel Reeves will announce a mile-based tax for electric cars.

According to the Office for Budget Responsibility’s document, in 2028-29 the charge will equate to 3p per mile for battery electric cars and 1.5p per mile for plug-in hybrids.

This means that the average driver of a battery electric car in 2028-29, driving 8,500 miles, is expected to be charged £255 for that year, according to the watchdog.

Pre-packaged milkshakes and lattes will be subject to the sugar tax, as the chancellor and health secretary ended the exemption for milk-based beverages from the existing tax on sugary drinks.

The move will affect products such as packaged milkshakes, coffees and sweetened yoghurt drinks but not drinks made on site in cafes and restaurants.

The threshold for levy will also be cut from 5g/100ml to 4.5g/100ml, hitting dozens more popular brands, including Pepsi, Irn Bru and Fanta

Local mayors will be allowed to impose a “tourist tax” on overnight stays, the government announced the night before the budget, as part of an attempt to put more money into England’s cities and regions.

Mayors will be given the power to levy a “modest” charge on visitors staying in hotels, bed and breakfasts, guest houses and holiday lets.

The plans will be subject to a consultation running until 18 February, which will consider issues including whether there should be a cap on the size of the levy.

The chancellor has announced reforms to gambling taxes to tackle the rise in online gambling, measures which are expected to raise over £1bn per year by 2031.

“Remote gaming is associated with the highest levels of harm, and so I am increasing remote gaming duty from 21 per cent to 40 per cent,” Ms Reeves told the Commons.

Duty on online betting will also increase from 15 per cent to 25 per cent. However, there will be no changes on taxes on in-person gambling or horse-racing, while bingo duty will be abolished entirely from April 2026.

Tax rates on property, savings and dividend income will rise by two percentage points, the chancellor said.

She told the Commons: “Currently, a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no national insurance is charged on property, dividend or savings income.

“It’s not fair that the tax system treats different types of income so differently and so I will increase the basic and higher rate of tax on property, savings and dividend income by two percentage points, and the additional rate of tax on property and savings income by two percentage points.

“Even after these reforms, 90 per cent of taxpayers will still pay no tax at all on their savings.”

The government has decided to lift the two-child benefit cap, a measure which the fiscal watchdog says will cost £3bn by 2029-30.

After months of back and forth on the issue, and growing pressure from Labour backbenchers, the government has finally decided to lift the controversial cap – a move the OBR estimates will increase benefits for 560,000 families by an average of £5,310.

The national living wage has been hiked to £12.71 for workers aged 21 and over – an increase of 4.1 per cent. The government said this will increase gross annual earnings of a full-time worker on the rate by £900. Meanwhile, the national minimum wage rate for 18- to 20-year-olds will increase by 8.5 per cent to £10.85 an hour, narrowing the gap with the national living wage.

This will mean an annual earnings increase of £1,500 for a full-time worker, which the government said marks further progress towards its goal of phasing out 18 to 20 wage bands and establishing a single adult rate.

The chancellor will extend the fuel duty freeze for another year, which the OBR estimates will cost £2.4bn next year and £0.9bn in the medium term.

The tax has been held at 57.95p since 2011, but the effective rate paid by drivers since 2022 has been 52.95p as a result of a “temporary” 5p cut.

And for the first time in 30 years, Rachel Reeves has frozen rail fares for one year – instead of allowing them to rise in line with inflation.

Ms Reeves said there will be a £150 cut to the average household energy bill from April next year, as a result of scrapping the Tories’ ECO energy scheme.

“The Conservatives’ ECO scheme was presented as a plan to tackle fuel poverty. It costs households £1.7bn a year on their bills, and for 97 per cent of families in fuel poverty, the scheme has cost them more than it has saved. It is a failed scheme,” the chancellor said.

“So I am scrapping that scheme, along with taking other legacy costs off bills. And a result, I can tell you today that, for every family, we are keeping our promise to get energy bills down and cut the cost of living with a £150 cut from the average household energy bill from April.”

Source: UK Politics - www.independent.co.uk