Rachel Reeves will announce a string of tax increases to fill a hole in the public finances on Wednesday, in a high-stakes Budget for the government as it contends with a weak economy, restive MPs and a slump in the polls.
The chancellor is expected to outline a tax and spending package of up to £30bn, with measures including an extended freeze on personal income tax thresholds and a “mansion tax” on homes worth more than £2mn.
Speaking ahead of the Budget, Reeves said she would make “fair and necessary choices” while also acting to help with the cost of living, including increasing the minimum wage.
“I will not return Britain back to austerity, nor will I lose control of public spending with reckless borrowing,” Reeves said.
She will announce her plans to the House of Commons following months of speculation over the contents of the Budget, which included a high-profile retreat earlier this month from plans to increase income tax, rattling bond markets.
Investors are expecting the tax rises and possible spending cuts to help Reeves build a new “fiscal buffer” of at least £15bn.
Here are the key areas to watch:
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Economy and public finances: The Office for Budget Responsibility is set to say borrowing will be £20bn a year higher by the end of the decade than expected in March. This will wipe out the £9.9bn “fiscal buffer” Reeves left herself. The chancellor will look to rebuild this headroom and then some.
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Big tax-raising measures: With manifesto pledge-busting income tax rises off the table, the single biggest revenue-raising measure is likely to be a two-year extension of the existing freeze on personal tax thresholds. Also watch for a raft of other measures, including a cap on pension salary sacrifice, a new council tax surcharge on homes worth more than £2mn, a “tourism tax” on overnight stays in English cities and increases in gambling taxes.
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Spending: The single biggest spending announcement is likely to be the £3bn cancellation of the UK’s two-child limit on benefits, a critical demand from many Labour MPs. She will also raise the minimum wage and freeze regulated rail fares.
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Cuts: The gap in Reeves’ Budget plans is any big effort to cut public spending. Analysts say Reeves could announce backloaded cuts to spending in 2029-30.