Reeves unveils tax rises and ends two-child benefit cap in high-stakes UK Budget

UK Chancellor Rachel Reeves has announced a major package of tax increases worth £26 billion as she attempts to stabilise the country’s finances while easing pressure on households. The Budget, described by many analysts as a defining moment for the Labour government, includes a wide range of new tax measures alongside support for families and public services.

Reeves confirmed that income tax and National Insurance thresholds will remain frozen for another three years. This means millions of workers will gradually move into higher tax brackets as their earnings rise, increasing overall tax contributions without changing headline rates. She also introduced a recurring charge for owners of homes valued above £2 million and outlined a new mileage-based levy for electric and plug-in hybrid vehicles. Additional increases will affect online betting taxes and the rules governing pension salary sacrifice schemes.

To balance the impact of these tax rises, the chancellor presented several cost-of-living measures, including the decision to end the two-child benefit cap from April next year. Reeves said removing the cap, which applies to tax credit and universal credit payments for families with more than two children, would lift 450,000 children out of poverty. She argued that the policy had failed to reduce family size or meaningfully lower welfare costs, while placing disproportionate financial strain on families.

The Budget presentation was overshadowed by an unexpected leak just minutes before Reeves’ speech, when the Office for Budget Responsibility accidentally published key economic forecasts online. The watchdog apologised and said the release was due to a technical error that will be investigated. Reeves described the incident as deeply disappointing, while Conservatives suggested the accidental release of market-sensitive information may warrant further scrutiny.

According to the OBR, the Budget’s measures will raise the UK’s overall tax burden to a record level of 38 per cent of national income by 2030 to 2031. Key changes include higher recurring charges for luxury property owners, a new mileage tax of three pence per mile for electric vehicles, an increase in online betting duty from 15 per cent to 25 per cent, and new limits on pension contributions under salary sacrifice arrangements. Cash ISA rules will also change, with individuals under 65 limited to £12,000 a year for cash savings.

Reeves emphasised that her approach avoids excessive borrowing and does not signal a return to austerity. She said government debt will fall as a share of national income and the UK’s fiscal headroom will double to £21.7 billion. She also argued that the Budget delivers on Labour’s promises to lower the cost of living, support public services, and strengthen economic resilience.

Despite the pressures facing the government, Reeves expressed confidence that the Budget will ease inflation, provide direct support for households, and maintain investment in the National Health Service. She said every decision was made to protect financial stability while addressing the needs of families across the country.