Chancellor Rachel Reeves has presented the government's highly anticipated Budget for 2025, outlining a series of significant tax and spending measures. The fiscal event was preceded by an unexpectedly early publication of a report from the Office for Budget Responsibility (OBR), which provides an independent analysis of the government's policies.
Major Tax Reforms and Revenue Raisers
The Budget introduces several key changes to the UK's tax landscape. Income tax thresholds will be frozen for an additional three years, a move that is projected to pull more earners into higher tax bands as their salaries increase.
In a significant shift for pension savings, National Insurance will be charged on 'salary-sacrifice' pension contributions above an annual threshold of £2,000 starting in April 2029. This measure is forecast to raise £4.7 billion for the Treasury.
A new 'mansion tax' will be levied on the country's most expensive properties. Homes valued at over £2 million will face an additional charge, set at £2,500 for properties worth £2m to £2.5m, rising to £7,500 for homes valued at £5 million. The OBR confirms this will generate £0.4 billion.
Furthermore, taxes on the gambling industry are set to increase, raising more than £1 billion, while a new 3p per mile charge for electric car drivers is expected to raise £1.4 billion.
Spending Pledges and Economic Forecasts
On the spending side, a major welfare change was confirmed. The two-child benefit cap will be scrapped from April. This policy currently limits the amount of benefits parents can claim for a third or subsequent child born after 6 April 2017. According to the OBR's analysis, ending this cap will cost the government £2.3 billion and is intended to directly impact child poverty reduction.
The Budget also brings some relief for motorists, with fuel duty frozen at 52.95p per litre until next September.
However, the economic outlook presented is less optimistic. Independent forecasters have cut growth expectations, with the economy now expected to grow by just 1.5% this year. Inflation is also projected to be higher than previously thought, at 3.5% this year and 2.5% next, driven by increased wages and food costs.
Conclusion and Wider Impact
This Budget represents a substantial recalibration of the UK's fiscal policy, balancing revenue-raising measures from various sectors with significant social spending. The combination of frozen tax thresholds, new levies on high-value assets and electric vehicles, and the abolition of the two-child benefit cap outlines the government's key priorities. The accompanying OBR report provides a sobering context of slower growth and persistent inflation, against which these new policies will be measured.
