Explainer: Takeaways from Britain’s tax-raising Budget, featuring freeze on income-tax thresholds

Britain's Chancellor of the Exchequer Rachel Reeves speaks in the House of Commons in London as the Government delivered its annual Budget. Photo / House of Commons, AFP

Britain’s Labour government unveiled a tax-raising Budget today costing billions of pounds to curb debt and fund public services, as the country faces lower economic growth in the coming years.

Chancellor of the Exchequer Rachel Reeves struck a fine balance between shoring up Labour’s credibility with voters as it trails badly in polls and convincing investors that the Government is fiscally prudent.

Below are the key takeaways from the United Kingdom’s high-stakes annual Budget.

Tax rises

Reeves announced billions of pounds worth of tax rises through to 2030-31, or one year after the next general election is due.

The tax hikes will raise nearly £30 billion ($70b) in 2030-31 and £26b in the previous financial year, official figures showed.

It brings “tax take to an all-time high of 38% of GDP in 2030-31”, Britain’s Budget watchdog said in its report.

The bulk of the extra funds will come from a freeze on income-tax thresholds beyond 2028 to 2031, pushing more workers into higher brackets.

The extension is a U-turn on Reeves’ pledge to uprate thresholds in line with inflation.

The Budget also included higher levies on gambling and homes worth more than £2 million, along with a mileage-based charge on electric cars.

Local mayors were given powers to levy a ‘tourist tax’ on visitors, while tax benefits for employee contributions to private pensions were capped.

Banks, long considered a potential target, were spared from tax increases.

Cost-of-living push

Tackling a prolonged cost-of-living crisis as UK inflation stays high was another key part of the Budget.

Reeves froze fuel duty, rail fares and prescription charges - and announced above-inflation rises to the minimum wage and pensions.

A two-child benefit cap was lifted, expanding government spending after pressure from Labour politicians.

Growth outlook

Alongside the Budget measures, the Government amended its forecast for UK economic growth.

Britain’s economy is on target to beat growth forecasts this year but likely to slow more than previously expected between 2026 and 2029.

Gross domestic product growth is set to hit 1.5% in 2025, up from the previous estimate of 1.0% given in March, the Office for Budget Responsibility said in a report accidentally released ahead of Reeves unveiling her annual budget to parliament.

GDP growth is predicted to slow to 1.4% next year, while it is forecast to reach 1.5% between 2027 and 2029, the OBR added.

-Agence France-Presse