Budget 2025: Rachel Reeves announces tax rises of £26bn and asks 'everyone to contribute'
Rachel Reeves has announced tax rises amounting to £26bn in her second Budget, saying she was asking “everyone to contribute for the security of our country”.
More than 1.7m people will face paying more income tax as she froze thresholds from 2028 onwards, meaning people will be dragged into paying the tax for the first time or shifted into higher bands as earnings increase.
At last year’s Budget, the Chancellor pledged she would end the Conservative policy of not keeping tax bands inline with inflation, however she said she was forced to U-turn on this admitting this will “affect working people”.
Ms Reeves told the House of Commons: “I am asking everyone to make a contribution. I can keep that contribution as low as possible because I will make further reforms to our tax system to make it fairer and to ensure the wealthiest contribute the most.”
However, measures including a so-called mansion tax have contributed to a tax burden that will rise to an “all-time high” in 2030/31, according to the Office for Budget Responsibility.
Despite extensive lobbying from agricultural groups and MPs, Ms Reeves failed to alter her changes to inheritance tax - except to make it simpler for someone transferring their tax-free allowance to their spouse.
The Chancellor’s plans to introduce a 20 per cent rate on agricultural land and businesses worth more than £1m from April have become a political flashpoint for a sector struggling with rising costs, tough market conditions and worsening climate impacts.
Ahead of the Budget, there were protests in Westminster with farmers driving tractors into central London despite police restrictions.
Several farmers were arrested for breaching a warning from Scotland Yard against “bringing vehicles, including tractors or agricultural vehicles, to today’s farmers protest”.
The Met later said: “We have already spoken to a number of individuals this morning to advise them of the conditions.
“The majority have listened to officers and complied with the conditions, however, several arrests have been made.”
More than a dozen tractors could be seen parked outside Parliament this morning, with rush-hour traffic brought to a standstill and farmers repeatedly sounding the tractor horns while police stood watching.
David Gunn, an arable farmer and agricultural contractor, said: “Inheritance tax is … going to cripple the farmers, the small family farmers.
“There’s all the other taxes they’ve been putting on us, and the prices we get for our produce and what it costs in the shop, we don’t make any money.
“Then there’s food security, farmers are going out of business.”
He said his message to the Government was: “Sort the pledge out.”
“You said in the manifesto you would look after the farmers, which you totally haven’t, you’ve ruined the countryside,” he said.
Labour MPs were much happier with Ms Reeves’ statement, with the Chancellor getting huge cheers for her pledge to cut the two-child benefit cap.
The policy, first announced in 2015 by the Conservatives and which came into effect in 2017 – restricts child tax credit and universal credit to the first two children in most households.
The Chancellor said the Tories were “were punishing parents’ choices, but it’s the kids that paid the price”.
Organisations working in the sector argue 109 children across the UK are pulled into poverty by the policy every day.
The York-based Joseph Rowntree Foundation said it could potentially deliver “the biggest fall in child poverty over the course of a parliament”.
Ms Reeves told the Commons: “Because I am tackling fraud and error in our welfare system, because I am cracking down on tax avoidance, because I am reforming gambling taxation, I can announce today – fully costed and fully funded – the removal of the two-child limit in full from April.”
She insisted she would not “preside over a status quo that punishes children for the circumstances of their birth”.
After some Labour figures have been openly questioning Sir Keir Starmer’s leadership, Ms Reeves managed to unite the party for now.
A number of MPs told The Yorkshire Post that lifting the two-child cap was their number one issue.
Former Labour prime minister Gordon Brown, who was among the loudest voices urging the limit to be removed, thanked Ms Reeves “for her decisive stand in favour of childhood equality”.
He described the move as an “invest-now-save-later policy” which will result in improved educational outcomes, greater adult earnings and “which will ultimately pay for itself with higher tax receipts”.