UK Chancellor Rachel Reeves announced the latest UK budget on Wednesday:

Rachel Reeves announcing major tax changes that the government says will raise £26.1bn by 2030. The budget was watched closely because Labour has been struggling in the polls, even losing ground to the far-right Reform UK party. The day started awkwardly when the Office for Budget Responsibility (OBR) accidentally released its economic report two hours early—something it never normally does. Reeves called the mistake “deeply disappointing” and a “serious error”. Despite promising last year not to raise taxes again, Reeves admitted she had to make tough choices. The biggest change is the decision to freeze income tax thresholds until 2031. This means as wages go up with inflation, more people will move into higher tax brackets—without any tax rate officially increasing. Because of this freeze, by 2029–2030 around 780,000 people will start paying basic income tax for the first time, and nearly 1 million more will move into the higher-rate band. Reeves accepted this will affect working people but said it was necessary to fix the nation’s finances. Even so, she repeated that income tax rates, National Insurance, and VAT will not increase. Instead, Reeves is aiming more of the burden at the wealthy. A new “mansion tax” will apply to homes valued above £2m. She is also cutting pension tax relief for high earners and increasing taxes on rental income, dividends, and capital gains by 2 percentage points. Financial adviser Nigel Green warned that sudden tax changes can affect where wealthy people choose to live and invest. The Chancellor said these measures will help create £22bn in fiscal headroom over the next five years. Government borrowing is also expected to fall each year—from £138.3bn next year to £67.2bn by 2031. The budget deficit is forecast to turn into a surplus by 2028, reaching £24.6bn by 2030–2031. Reeves repeated several times that she would not return the UK to the days of austerity. One of the most widely welcomed decisions is the plan to scrap the two-child benefit cap from April 2026. Today, parents can only receive tax credits for their first two children. Reeves said ending the cap will lift thousands of children out of poverty. Economists, child-poverty campaigners, and many Labour MPs strongly supported this move. Some experts said removing the cap was essential for Reeves’ political credibility and for Labour to show it cares about struggling families. Reeves also announced the end of the “rape clause”, which forced women to prove a child was conceived through rape to claim benefits. She called the policy “grotesque” and said she was proud to end it as the UK’s first female Chancellor. The OBR updated its forecasts after the budget. It now expects the UK economy to grow 1.5% this year—higher than previously thought. However, it cut growth expectations for the next four years because of weaker productivity predictions. Reeves blamed this on the “legacy” of the previous Conservative government. The budget also keeps fuel duty and rail fares frozen and extends support for energy bills. These measures helped the OBR lower its inflation forecast for next year. Financial markets reacted calmly. The pound briefly rose before settling, and both the FTSE 100 and FTSE 250 gained around 0.6%. Economists said the quiet market response showed the budget did not scare investors—a result Reeves will likely see as a win.

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