Budget 2025: Reeves Announces £26bn in Tax Hikes, Scraps Two-Child Benefit Cap
London – shadow Chancellor Rachel Reeves today unveiled a budget plan featuring £26 billion in tax increases alongside the abolition of the two-child benefit cap, aiming to restore fiscal stability and fund key public services. The proposals,presented as a necessary course correction,seek to reassure financial markets while addressing concerns over the rising cost of living and long-term economic growth.
The budget’s core strategy centers on increasing taxes - impacting incomes both now and in the led-up to the next election – and moderating growth in public service spending. Reeves framed these measures as essential to meeting fiscal rules by 2030 with a bolstered safety margin, effectively averting immediate financial instability. However, the plan’s political viability and long-term economic impact remain open to debate, notably given the UK’s high debt levels and increasing welfare costs.
Reeves’ plan directly responds to a revised economic assessment and recent policy adjustments. The proposed tax increases will impact a broad range of earners, while the removal of the two-child benefit cap is projected to lift hundreds of thousands of families out of poverty. The budget also acknowledges the potential for future revisions, a move that could be tempting politically but risks unsettling the financial markets, which remain sensitive to the UK’s economic outlook.
According to analysis,the measures will squeeze income growth after accounting for inflation and taxes. Slower growth in funding for public services is also anticipated. While the immediate reaction has been to calm market anxieties, the long-term sustainability of the plan hinges on continued economic stability and the avoidance of further policy U-turns.
Dharshini David, deputy economics editor, noted the budget may be a ”short-term sticking plaster – which may well come unstuck over time, and require another look.”
