Rachel Reeves increased taxes by £40billion but promised to invest to "rebuild Britain" as she became the first woman in history to deliver the Budget on Wednesday.
The Labour Chancellor vowed to put "more pounds in people's pockets" but insisted the Government needed to plug the £22billion blackhole in public finances.
She committed to not increasing income tax or national insurance for employees, but businesses will be hit with a greater share of the burden to help fund stretched public services and invest in infrastructure.
Changes to borrowing rules will also allow her to pump billions of pounds into renewing crumbling schools and prisons and tackle NHS waiting lists.
Britain will borrow more than £32billion more over the next five years and the NHS will get a record £22.6billion increase in the day to-day health budget.
There was good news for London transport, with the Chancellor committing £485million for TfL’s capital renewals programme and confirming HS2 will go to Euston.
Mayor of London Sadiq Khan said the cash “will help to support the crucial maintenance, renewal and growth of London’s transport system”.
Ms Reeves told the Commons: “We will restore stability to our country again.
“The scale and seriousness of the situation that we have inherited cannot be underestimated.
“Together, the black hole in our public finances this year, which recurs every year, the compensation payments which [the Conservative Government] did not fund and their failure to assess the scale of the challenges facing our public services means this budget raises taxes by £40billion.
“Any Chancellor standing here today would face this reality. And any responsible Chancellor would take action. That is why today, I am restoring stability to our public finances and rebuilding our public services.”
Business Taxes
Ms Reeves confirmed a £25billion raid on employers' national insurance contributions, with higher rates and a lower starting threshold.
Businesses will be hit by a 1.2 percentage points increase in employers' NI, to 15%, from April 2025.
“I know that this is a difficult choice,” the Chancellor said. “I do not take this decision lightly.”
The Government will reduce the Secondary Threshold – the level at which employers start paying NI on each worker’s salary – from £9,100 per year to £5,000.
Companies will also have to fork out for an inflation busting 6.7% minimum wage hike. Firms in the capital, where running costs are higher, are likely to be hit hardest by these changes.
However, the smallest businesses will get some protection, the Chancellor said, as she announced the Employment Allowance would increase from £5,000 to £10,500.
This means 865,000 employers won’t pay any National Insurance at all next year and over 1 million will pay the same or less than they did previously, the Chancellor said.
“This will allow a small business to employ the equivalent of four full time workers on the National Living Wage without paying any National Insurance on their wages,” Ms Reeves added.
Worker Taxes
In a boost for workers, the Government will not extend the freeze on income tax and national insurance thresholds beyond 2027/28.
The Chancellor said it would "hurt working people" to keep thresholds frozen and they will instead go up in line with inflation.
Since 2010, workers earning more than £100,000 a year have had their personal allowance tapered away, meaning that for every £2 earned above the threshold, £1 of the allowance is removed.
"The previous government froze income tax and National Insurance thresholds in 2021 and then they did so again after the mini-budget,” the Chancellor said.
“Extending their threshold freeze for a further two years raises billions of pounds - money to deal with the black hole in our public finances and repair our public services.
"Having considered the issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips.
"I am keeping every single promise on tax that I made in our manifesto. So there will be no extension of the freeze in income tax and National Insurance thresholds beyond the decisions of the previous government.”
Inheritance Tax
Inherited pension pots will be subjected to inheritance tax from April 2027 under new rules.
Alongside these changes, the Chancellor confirmed that she was extending the freeze on thresholds until 2030. The threshold freeze was due to expire in 2028.
The first £325,000 of any estate can be inherited tax-free, rising to £500,000 if it includes a home passed to direct descendants and £1million when a tax free allowance is passed to a surviving spouse or civil partner.
Non-Doms
The non-dom tax regime will be abolished from April 2025, the Chancellor announced.
A new, residence based scheme will be introduced "for those coming to the UK on a temporary basis”.
To further encourage investment into the UK, the Government will also extend the Temporary Repatriation Relief to three years and expand its scope in measures it is claimed will raise £12.7billion over the next five years
Capital Gains Tax
Capital Gains Tax rates on carried interest will increase to 32% from April 2025, From April 2026 the Government will deliver “further reforms to ensure that the specific rules for carried interest are simpler, fairer and better targeted”, the Chancellor said.
Housing
In a big blow to buy-to-let sector, the tax surcharge for second-homes, known as the “Higher Rate for Additional Dwellings”, will increase by 2 percentage points, to 5% from Thursday.
“This will support over 130,000 additional transactions from people buying their first home, or moving home over, the next five years,” Ms Reeves said.
Ben Beadle, chief executive of the National Residential Landlords Association, said: “Hiking stamp duty on homes to rent when 21 people are chasing every rental property makes no sense.
“Analysis by Capital Economics has found that increasing Stamp Duty on rental properties from three to five per cent will see a net loss of half a million homes to rent over 10 years.
“This will not help the huge number of tenants for whom homeownership is still a distant dream.”
Stamp duty rates start at £425,000 for first time buyers and £250,000 for everyone else. The Government will let them fall to £125,000 and £300,000 from April next year in a particular hit to buyers in London and the southeast where the average property price is £688,856.
The Chancellor vowed investment in housing, telling the Commons: "We will increase the Affordable Homes Programme to £3.1 billion, delivering thousands of new homes.
"We will provide £3 billion of support in guarantees to boost the supply of homes and support our smaller housebuilders. And we will provide investment to renovate sites across our country, including at Liverpool Central Docks where we will deliver 2,000 new homes, and funding to help Cambridge realise its full growth potential."
Ms Reeves also acknowledged the need to increase the supply of affordable housing, saying: “I can today confirm that the Government will reduce Right to Buy Discounts and local authorities will be able to retain the full receipts from any sales of social housing so that we can reinvest back into the housing stock and into new supply.”
She added: "By doing this we will give more people a safe, secure and affordable place to live.
"We will provide stability to social housing providers, with a social housing rent settlement of CPI plus 1% for the next five years and we will deliver on our manifesto commitment to hire hundreds of new planning officers to get Britain building again.
"We will also make progress on our commitment to accelerate the remediation of homes following the findings of the Grenfell Inquiry, with £1 billion of investment to remove dangerous cladding next year."
Andrew Carpenter, CEO of the Structural Timber Association, said: “This is welcome news indeed and the structural timber sector is poised to support delivery of these plans.
“We applaud the focus on social housing, as well as the recognition that planning can be an obstacle in housing growth. The news that the Government will set out to recruit hundreds more planning officers should go a long way to alleviating that issue.
“Overall, this is a good starting point from which the industry can move forwards, but we would urge the Government not to miss the huge opportunity that is presented by aligning house building ambitions with the country’s pressing environmental challenges.”
Local Authorities
Councils in London are being pushed to the brink of bankruptcy by temporary accommodation and social care costs. The crisis has forced some town halls in the capital to request bailout loans from the government to balance their books.
Local authorities will get “a significant real-terms funding increase”, Ms Reeves said, including £1.3billion worth of grants to deliver essential services.
Some £230million has been allocated to tackle homelessness and rough sleeping, which is most acute in the capital.
Westminster council leader Adam Hug said: “Westminster is home to the largest number of rough sleepers in the UK and £230m in extra investment for homelessness and rough sleeping recognises the scale of the issue for councils.
“Westminster City Council spends £7m a year helping the homeless, but the reality is new people are appearing on our pavements every day.”
There will be a £1billion to extend the Household Support Fund and Discretionary Housing Payments next year to help those facing financial hardship with the cost of essentials.
Mr Hug added: “The extension of the household support fund is hugely welcome - for many Westminster families it has been a lifeline helping to pay for food vouchers and warm spaces. The cost of living crisis is still here and many families will be facing Christmas reliant on food banks.”
Rail and Restoration
There will be funding for some large infrastructure and growth projects. The Chancellor confirmed HS2 will go to Euston, committing the funding required to begin tunnelling work from Old Oak Common.
East-West Rail will go ahead. The first services will run between Oxford, Bletchley and Milton Keynes next year and trains between Oxford and Bedford will begin from 2030, Ms Reeves added.
Road maintenance budgets will get a £500million boost next year to fix an additional one million potholes annually.
Bus and Train Fares
Hidden in the Budget papers was the fact that commuter train fares in England will increase by up to 4.6% next year.
This is likely to mean that Tube fares rise by a similar amount from next March, although the Mayor of London has the power to set a different amount.
The increase in fares is one percentage point above July’s Retail Prices Index (RPI) measure of inflation, which until 2023 was used by Westminster governments to set the cap on annual rises in regulated fares.
Last year regulated fares rose by 4.9 per cent - a hike described by the now Transport Secretary Louise Haigh as “brutal”.
Bus fares outside of the capital will rise to £3 after being capped at £2 by the previous government. London bus fares could also rise. The fare is currently £1.75 - the cheapest in the country.
Cigarettes and Alcohol (and Vaping)
Pints in London have already breached the £8 mark, while the average cost of a G&T over £10 in inner boroughs.
There will be some a tiny bit of relief for draught drinkers, but spirit fans will be hit.
Draught alcohol duty will be cut by 1.7%, which means a penny off a pint in the pub.
But Ms Reeves confirmed that tax on non-draught products, such as whiskey, gin and vodka, will increase in line with RPI from February next year after a 10.1% rise in 2023.
Chief Executive of the Scotch Whisky Association Mark Kent said: “On the back of the 10.1% duty increase last year, which led to a reduction in revenue for HM Treasury, this tax hike serves no economic purpose.
“The disastrous 10.1% duty hike last year has now been compounded. This further tax rise means the lessons have not been learned, and the Chancellor has chosen continuity with her predecessor, not change.”
A flat rate of duty will be applied on all vaping liquid from October 2026 alongside an additional one-off increase in tobacco duty to encourage people to give up smoking.
NHS and Carers
The NHS will get record £22.6billion increase in the day to-day health budget and a £3.1bn increase in the capital budget over this year and next.
Some £1billion will be used to address the backlog of repairs and upgrades across the NHS estate.
A further £1.5billion will be for new beds in hospitals across the country and new capacity for over a million additional diagnostic tests to bring down waiting lists to no longer than 18 weeks.
Carers can now earn over £10,000 a year while receiving Carer’s Allowance, the Chancellor announced. This will allow them “to increase their hours and keep more of their money”, she added.
Pensions
There were no surprises for pensioners in the Budget after the Government committed to the triple lock. Spending on the State Pension is forecast to rise by over £31billion by 2029-30.
While working age benefits will be uprated in line with CPI, at 1.7% the basic and new the State Pension will be uprated by 4.1% in 2025-26.
“This means that over 12 million pensioners will gain up to £470 next year up to £275 more than if uprated by inflation,” the Chancellor said.
“The Pension Credit Standard Minimum Guarantee will also rise by 4.1% from around £11,400 per year to around £11,850 for a single pensioner.”
Private Schools
Labour's had committed to imposing VAT on private schools from January.
The government will also remove business rates charitable rate relief from independent schools in England from April 2025, the Chancellor announced.
Together, these policies are expected to raise £1.8 billion per year by 2029-30. The Government insisted that the impact on the state education system as a whole is expected to be very small.
Fuel Duty
Fuel duty will be frozen meaning no higher taxes at the petrol pumps next year in a boost for London drivers.
Reaction
Rishi Sunak accused Ms Reeves of delivering a Budget containing "broken promise after broken promise".
The outgoing Conservative leader claimed the Chancellor had decided to "let borrowing rip" and tried to "cover up that splurge by fiddling the fiscal rules".
Mr Sunak added that "never in the history of our country will taxes be higher than they are under this Labour Government" due to the Budget.
He also accused Ms Reeves and his successor as prime minister, Sir Keir Starmer, of "damaging the British economy for political purposes" by their rhetoric and claimed it was "nonsense" to suggest Labour had inherited difficult circumstances.
Mayor Sadiq Khan said: “Today’s historic budget shows that we finally have a Government that understands the problems and opportunities London faces and is working with us here in the capital, not against us.
“Substantial additional funding for TfL is fantastic news and will help to support the crucial maintenance, renewal and growth of London’s transport system. And after all the dither and delay from the previous Government, confirming that HS2 will terminate at Euston will mean the capital can finally realise the full economic benefits of the project.
“I am delighted that the Chancellor has announced additional money in London for social housing, schools and the NHS - public services that are in desperate need of investment. And the rise in the National Minimum Wage will be a real boost for thousands low-paid Londoners across the capital, as will new funding for breakfast clubs in our schools.
“I am under no illusion about the extent of the economic difficulties inherited by the new Government. This budget is about fixing our economy and public services after more than a decade of mismanagement and decline, and beginning the process of national renewal.”
The Budget watchdog confirmed that the last government "did not provide" them with all available information ahead of the last Budget.
But it did not repeated Ms Reeves’ £22billion black hole claim.
The Office for Budget Responsibility (OBR) has uncovered £9.5billion in spending pressures that it was not made aware of ahead of ex Chancellor Jeremy Hunt's fiscal statement in March, and has said that its judgment on spending would have been "materially different" had it had access to this information.
Reflecting on the March 2024 budget in a review released on Wednesday, the OBR said that "by their own admission the Treasury did not provide the OBR with all information available to them".
The document goes on to say that a "materially different judgment" about spending would have been reached if all of the information had been shared with them ahead of the March budget.
Richard Hughes, the body's chairman told a briefing on Wednesday that he is an "economist not an astronomer" and "we don't deal in black holes in the OBR".
