RACHEL Reeves today unleashed a £26BILLION tax bombshell to pay for eye-watering levels of benefit spending.
In a shambolic Budget that was leaked early, the Chancellor drove up the tax burden to 38 per cent of GDP in the most punishing squeeze since the war.
She broke last year’s promise to end the stealth tax on workers and has instead extended the freeze on income thresholds to raise £8billion.
It will drag almost a million more people into paying the higher rate of income tax by the end of the decade.
Ms Reeves also announced higher taxes on pension sacrifice schemes, betting, electric cars and large homes to plug her financial black hole
But in a win for The Sun’s Keep It Down campaign, fuel duty will be frozen for a 15th consecutive year and the 5p cut maintained in the short term.
The welfare bill will continue to balloon by an extra £11billion by the election – including the £3billion cost of abolishing the two-child benefit cap.
The entire package reveals:
Ms Reeves defiantly insisted: “I have protected our NHS – maintaining public investment and driving efficiency in government spending.
“I have taken action on our broken welfare system – rooting out waste and lifting children out of poverty.
“And I have cut the cost of living – with money off bills and prices frozen. All while keeping every single one of our manifesto commitments.
Tory leader Kemi Badenoch blasted: “This is a Budget for Benefits Street paid for by working people.”
She railed: “She could have chosen today to bring down welfare spending and get more people into work.
“Instead she has chosen to put up tax after tax after tax, taxes on workers, taxes on savers, taxes on pensioners, taxes on investors, taxes on homes, holidays, cars, I think even milkshakes. Taxes on anyone doing the right thing.
Ms Reeves speech was thrown into chaos when her entire Budget was mistakenly published early by the Office for Budget Responsibility.
In an unprecedented blunder, market sensitive tax and spend policies were put into the domain around half an hour ahead of time.
Chaotic scenes saw MPs reading the policies on their phones in the chamber before the Chancellor got to her feet.
Ms Reeves used her make-or-break Budget to blame the Tories, Brexit and Covid for forcing her to hike taxes.
She said her Budget was “not austerity, not reckless borrowing, not turning a blind eye to unfairness.”
“My choice is a Budget for fair taxes, strong public services, and a stable economy. That is the Labour choice.”
‘Broken promises’
Yet she risks the wrath of voters after promising that last year’s £40billion Budget had “wiped the slate clean” and not require more tax hikes.
She also used the 2024 package to vow to unfreeze income tax thresholds in 2028 to shield the hit to “working people”.
Today’s Budget reverses that decision and will keep the income band freeze.
Ms Reeves said: “I know that maintaining these thresholds is a decision that will affect working people I said that last year and I won’t pretend otherwise now.
“I am asking everyone to make a contribution, But I can keep that contribution as low as possible because I will make further reforms to our tax system today to make it fairer, and to ensure the wealthiest contribute the most.”
Meanwhile she confirmed the £3billion move to scrap the two-child benefit cap after furious lobbying from her backbenchers.
The move to appease her party risks the wrath of voters who overwhelmingly want to keep the limits on how much parents can claim.
Budget shambles
By Jack Elsom, Political Editor
What we are currently witnessing is without precedent – and the biggest Budget shambles in history.
In an extraordinary clanger, the OBR accidentally published the entirety of Rachel Reeves’ measures half an hour before she was due to deliver them.
The Budget is meant to be top secret until the Chancellor delivers her speech because so much of it is market sensitive.
Not only that, but the leak has stolen Ms Reeves’ thunder given we now all know what she is about to announce.
It is a bungle for the ages and one that will forever haunt the Treasury memory. Thoughts with the person responsible…
Repeat polling shows around 60 per cent of Brits want to maintain the two-child benefit cap, a pledge Ms Reeves made during the election on the grounds removing it was too costly.
Labour MPs have argued that abolishing the cap is the best way to lift around 350,000 kids out of poverty.
Critics have said her decision to bend to their demands highlights her political vulnerability.
But she refused to heed the calls of some left-wingers to throw off her borrowing restraints and send debt spiralling even higher.
In a bid to reassure the markets, she mounted a full-throated defence of her “iron-clad” fiscal rules.
The Chancellor said: “A growing economy needs strong foundations of economic stability with borrowing and inflation down and investment up.
“That is good for business, and it is good for working people – so they have more money in their pockets.
“Economic stability, safeguarded by iron-clad fiscal rules, is our best defence against rising prices and the best way to improve living standards.
“We’ve all seen the alternative. Three years ago, in their clamour to cut taxes for those at the top, the Tories under Liz Truss crashed the economy, sent mortgage rates spiralling and brought pensions to the brink.”
Yet the OBR downgraded average growth from 1.6 to 1.4 per cent over the next four years.
Tax attack
Ms Reeves unleashed the long-awaited “smorgasbord” of little tax hikes that include lots of smaller levies to make the sums add up.
Electric car motorists face a charge of around 3p per mile on top of other road levies which could set them back £250 every year.
A “mansion tax” will see properties worth more than £2million hit by a £2,500 surcharge to raise £400million.
Taxes on booze, fags and vapes will all go up with inflation in a fresh “sin tax” raid.
Ms Reeves confirmed taxes will rise on remote gaming and online betting.
They will rise from 21 per cent to 40 per cent and 15 per cent to 25 per cent respectively.
No change to in-person betting or on horse racing will take place – while bingo duty will be abolished altogether from April 2026.
Ms Reeves also said the “milkshake tax” announced by Wes Streeting will be introduced alongside higher taxes on cigarettes and alcohol.
Yet in a glimmer of good news for drivers, fuel duty will be frozen for another year.
However the temporary 5p cut introduced in 2022 will be gradually be scrapped from next September, which will push up pump prices.
Slow growth
The miserable tax blitz means living standards will rise more slowly than expected.
Analysis by the OBR shows sluggish rates of growth in Real Household Disposable Income.
This is due to slowing real wage growth and the stealth tax freeze on income thresholds.
The OBR report says: “Growth slows sharply in our central forecast from three per cent in 2024-25 to 0.5 per cent in 2025-26 and 0.25 per cent in 2026-27.
“It then averages 0.25 per centa year in the rest of the forecast – well below the last decade’s average of just under one per cent a year.”
The Chancellor vowed to stop wasting taxpayers’ cash and channel it into frontline services.
She outlined £14 billion a year in efficiencies by 2029 through AI, automation, and scrapping NHS England.
She announced a further £4.9 billion of savings by 2031 by axing Police and Crime Commissioners and selling off unused government assets.
Those savings, she said, will be reinvested directly into the NHS with more nurses, GPs, appointments and a £300 million tech upgrade, plus 250 new Neighbourhood Health Centres.
She pledged the same reinvestment model for defence, with the UK on track to spend 2.6 per cent of GDP on security by 2027.
And she promised to crack down on fraud and waste, claw back excess profits from migrant hotels, phase out hotel use entirely, and consult on tightening ILR and access to taxpayer-funded benefits.
The chaotic run-up to the Budget saw Ms Reeves plan for a manifesto-busting income tax rise before rowing back amid a furious backlash.
But Sir Keir Starmer has insisted he is sticking with her for his entire time in office, with their fates becoming increasingly intertwined.
