Rachel Reeves targeted Britain\u2019s wealthiest households with a \u00a326bn tax-raising budget to fund scrapping the two-child benefit policy and cutting energy bills.<\/p>\n
On a chaotic day that involved key details of her budget accidentally being released early by the Office for Budget Responsibility<\/a> (OBR), the chancellor defended the measures, saying she was \u201casking everyone to make a contribution to repair the public finances\u201d, but that she wanted the wealthiest to pay the most.<\/p>\n While insisting she had avoided reckless borrowing and dangerous cuts, the budget will push the tax take to an all-time high of 38% of GDP in five years\u2019 time.<\/p>\n .<\/a><\/p>\n More than 1.7 million workers will be dragged into either paying tax for the first time or pushed into a higher band by an additional three-year freeze on income tax and national insurance thresholds \u2013 that Reeves conceded would hit \u201cworking people\u201d but bring in \u00a312.4bn by 2030-31.<\/p>\n Some Labour MPs privately expressed alarm at the extent to which the budget would hit the so-called \u201csqueezed middle\u201d including more nurses, teachers and police officers paying the higher rate tax.<\/p>\n Almost one in four taxpayers, 24%, will be paying the higher or additional rates in five years\u2019 time as a result of extending the threshold freeze, a process known as \u201cfiscal drag\u201d. The OBR said the threshold freeze would bring an additional 780,000 people into paying the basic rate of income tax; 920,000 into paying the higher rate; and another 4,000 would pay the additional rate.<\/p>\n In a series of well-trailed measures, the chancellor targeted the rich via a new council tax surcharge for properties worth more than \u00a32m and announced a 2p tax increase on income from dividends, savings and property. Contributions to \u201csalary sacrifice\u201d pension schemes, on which employers pay no national insurance, will be capped at \u00a32,000 from 2029 \u2013 bringing in a significant \u00a34.7bn a year.<\/p>\n Reeves later told journalists that she did not believe she had broken the Labour manifesto with the threshold freeze. \u201cIf you read the manifesto, we are very clear, we say \u2018the rates of income tax, NI and VAT\u2019, but if you are asking does this have a cost for working people, I acknowledge it does,\u201d she said.<\/p>\n The OBR said the tax squeeze would hit living standards, with real disposable household income scheduled to rise by just 0.25% a year over the forecast period \u2013 weaker than it expected in March.<\/p>\n .<\/a><\/p>\n Financial markets responded positively as Reeves more than doubled the financial buffer she has left against her fiscal rules to \u00a321.7bn, from less than \u00a310bn in her spring statement.<\/p>\n Yields on 10-year government bonds, or gilts, which move in the opposite direction to prices, were down 0.07 percentage points at 4.41% by late on Wednesday, lowering the cost of government borrowing.<\/p>\n .<\/a><\/p>\n Labour MPs hailed the chancellor\u2019s decision to spend \u00a33bn a year on scrapping the controversial two-child benefit limit in full, a move the government said would lift 450,000 children out of poverty.<\/p>\n \u201cI don\u2019t intend to preside over a status quo that punishes children for the circumstances of their birth,\u201d the chancellor said to cheers from the Labour backbenches.<\/p>\n Reeves also promised to bear down on inflation with a package of cost-of-living measures, including removing green subsidies from household energy bills and freezing rail fares.<\/p>\n Levies on energy bills will now be paid out of general taxation, which the Treasury said could reduce bills by an average of \u00a3150 a year from next April.<\/p>\n Labour MPs and ministers praised the budget as a shift leftwards \u2013 saying it had bought Keir Starmer and Reeves time from a much-rumoured leadership challenge.<\/p>\n \u201cThis shows we are a full-blooded Labour government. In an ideal world we would have wanted welfare to come first but we are where we are. People want us to make an argument \u2013 so this is one. Wealthiest pay more and we protect those with greatest need,\u201d one senior strategist said.<\/p>\n But several others said the OBR showed the fundamental weakness in the economy remained \u2013 and that the deep reservations about Starmer\u2019s leadership would not be calmed by this budget. \u201cThis does nothing to move the fundamentals,\u201d one minister said. \u201cYet again there was an opportunity for boldness which has led to nothing much.\u201d<\/p>\n Another minister said: \u201cThis buys them a few months with backbenches and bond markets and it further cements hatred with my voters. But it delays the now inevitable reckoning.\u201d<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Business Today<\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com<\/a> to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy<\/a>. We use Google reCaptcha to protect our website and the Google Privacy Policy<\/a> and Terms of Service<\/a> apply.<\/p>\n after newsletter promotion<\/p>\n Reeves also announced the OBR will now only assess her against her fiscal rules once a year, at the autumn budget \u2013 a change aimed at avoiding renewed instability. She was responding to weaker economic forecasts from the OBR, which now expects average GDP growth of 1.5% over the next five years \u2013 0.3% slower than previously expected.<\/p>\n .<\/a><\/p>\n Alongside the threshold freeze and the mansion tax, other revenue raisers announced by Reeves included a \u00a31.1bn increase in tax on online gambling and a 3p-a-mile levy on electric vehicles. Rishi Sunak\u2019s 5p cut to fuel duty was extended to next summer, but it will start to rise from next September.<\/p>\n Gilt yields began falling even before Reeves stood up in the House of Commons, as traders digested the OBR\u2019s budget document, mistakenly published on the watchdog\u2019s website about 40 minutes before she was due to begin speaking.<\/p>\n Jonas Goltermann, the deputy chief markets economist at Capital Economics<\/a>, said: \u201cThe gilt market is breathing a sigh of relief after the much-anticipated UK budget announcement today delivered less bad news than feared and the chancellor appears to have, so far, come out of a fraught fiscal process a bit stronger.\u201d<\/p>\n Some analysts highlighted the heavily backloaded nature<\/a> of Reeves\u2019s plans, however, with borrowing set to be higher over the next three years, and the bulk of the tax rises scheduled for the end of the parliament, to ensure she can meet her fiscal rule of covering day-to-day spending with taxes.<\/p>\n