Rachel Reeves’ much-trailed Budget proved to be long on taxation and spending measures, but short on meaningful plans for growth.
- Income tax and National Insurance thresholds were frozen until 2030-31
- Growth forecasts were downgraded
- The Cash ISA allowance was cut to £12,000
“24% of workers will pay the higher or additional rate of income tax by 2030”
Rachel Reeves’ much-trailed Budget proved to be long on taxation and spending measures, but short on meaningful plans for growth. While the outlook for economic growth has been downgraded by the Office for Budget Responsibility (OBR), the Chancellor’s tax-raising measures are set to bring the tax take to “an all-time high of 38% of GDP in 2030-31”.
Growth outlook: lower underlying productivity growth is set to put a brake on economic growth, according to the OBR. Real GDP is predicted to grow by 1.5% on average over the next five years – 0.3 percentage points slower than the OBR’s forecast in March. The forecast for UK economic growth this year was raised from 1% to 1.5%; however, the OBR cut its growth forecasts for subsequent years: for 2026 from 1.9% to 1.4% in 2026; from 1.8% to 1.5% in 2027; from 1.7% to 1.5% in 2028; and from 1.8% to 1.5% in 2029.
The Chancellor’s spending plans will mean that borrowing as a share of GDP is set to fall more slowly than previously predicted: the OBR now expects it to fall from 5.1% in 2024-25, to 4.5% in 2025-26, and then to continue falling until it reaches 1.9% in 2029-30.
Personal taxation: income tax and National Insurance thresholds were frozen until 2030-31, which will drag more people into higher income tax rates over time. According to the OBR, 24% of workers will pay the higher or additional rate of income tax by 2030. Basic and higher tax rates on income from dividends, savings and property will increase by two percentage points from April 2026. Capital gains tax relief on disposals to employee ownership trusts was cut from 100% to 50% with immediate effect. From April 2026, upfront income tax relief for Venture Capital Trusts will be cut from 30% to 20%. Elsewhere, homes in England valued at over £2 million will incur an annual High Value Council Tax surcharge from April 2028. According to the Institute for Fiscal Studies , more net tax increases have been announced in this parliament than in any other since at least 1970.
Savings: although the annual ISA allowance will remain at £20,000, the amount of cash that can be saved within a cash ISA will drop to £12,000 from April 2027, in a move designed to encourage retail investment. However, savers aged over 65 will retain the full £20,000 cash allowance. Looking ahead, the government also announced its intention to introduce a simpler ISA product to replace the Lifetime ISA.
Wages and benefits: from April 2029, pension contributions made via salary sacrifice of more than £2,000 per year will have to pay National Insurance contributions. The basic and new state pension will rise by 4.8% from April 2026. The National Living Wage will increase in April 2026 by 4.1% to £12.71 per hour; the National Minimum Living Wage for workers aged 18-20 will rise by 8.5% to £10.85 per hour, and for workers aged 16-17 and apprentices by 6% to 8% per hour. The two-child benefit cap will be abolished from April 2026, and the “Help to Save” scheme, which offers an incentive to savers on Universal Credit will be expanded from April 2028
Transport: the 5p cut in fuel duty was extended until September 2026, after which it will start to return to March 2022 levels. Drivers of electric and plug-in hybrid vehicles will incur a mileage charge from 2028, and luxury cars will be removed from the Motability scheme.
Businesses: a reduction in business rates for smaller retail, hospitality and leisure (RHL) properties valued below £500,000 will be funded by higher rates on RHL properties valued at £500,000 or more. Taxes on profits from online betting will rise from 21% to 40% from next April; an online-only duty of 25% will be introduced; duty on bingo will be scrapped. Sugary milk-based drinks will incur a tax from 2028.
Business reaction: in response, the Confederation of British Industry commented: “The government’s growth mission is currently stalled”; meanwhile, the British Chambers of Commerce said: “Many will be disappointed that this Budget did not provide a more compelling blueprint to deliver transformational growth.”
