Rachel Reeves will deliver her second Budget on November 26 after weeks of speculation and leaks over possible tax hikes. Here The Mirror looks at what the Chancellor could announce
Chancellor Rachel Reeves will next week deliver a make-or-break Budget.
It follows weeks of speculation over tax and how the Chancellor will fill a multi-billion pound blackhole in the public finances in order to stick to her strict spending rules. In a rare pre-Budget speech a fortnight ago, she appeared to put the country on notice for tax hikes – warning “each of us must do our bit”.
Keir Starmer and Ms Reeves had been preparing for what was unthinkable last year – breaching a key part of Labour’s manifesto not to hike income tax. But last week she is understood to have recieved better than expected forecasts from the Office for Budget Responsibility (OBR) putting the hole at around £20billion. While the figure is still bleak, it slightly rosier than the £30billion-£40billion than experts had previously feared.
READ MORE: Rachel Reeves abandons Budget income tax hike – but tax ‘remains on table’READ MORE: Labour begged to make major change as dozens of stars join forces with new demand
Here The Mirror looks at what could be in the Budget, which the Chancellor will deliver from around 12.30pm on November 26.
Income tax, VAT and national insurance
Labour’s election winning manifesto promised no hikes on VAT, national insurance, or income tax for working people.
But the government had been considering ripping up the promise on income tax with the first hike in almost 50 years. The Chancellor had rolled the pitch for a possible increase – even warning it would not be possible to stick to the promises without “deep cuts in capital spending”.
But last week the plans were dropped after the government received better than expected forecasts reduced the size of the black hole in the public finances.
Ms Reeves is also said to be looking at extending the freeze on income tax thresholds for another two years, which had been due to end in 2028. The move – often branded a stealth tax – means more people are dragged into paying a higher rate of tax as their incomes rise.
Minimum wage boost
The Budget usually includes a boost to the minimum wage for millions of workers. Currently workers over the age of 21 recieve around £12.21 under the minimum wage while those between 18 and 20 receive £10.
In the summer the government said its estimate was for the wage to increase to between £12.55 to £12.86. The Chancellor is said to be looking at increasing the amount to around £12.70 from April 2026, which would be a rise of around 4%.
Energy bills
Keir Starmer has said his key priority is slashing the cost of living for struggling Brits. Among options being considered are measures to cut the costs of household energy bills.
The Treasury has been looking at eliminating VAT – which stands at 5% on energy bills – to zero. This has been estimated to cost over £2billion, but saving consumers on average around £80-per-year. There have also been suggestions the government could cut other levies on energy bills.
Two-child benefit limit
Charities campaigning against poverty and Labour MPs have long called for the end of the two-child benefit limit – one of the most severe austerity-era policies. It restricts child tax credits and universal credit to the first two children in a family.
Last week Ms Reeves dropped her strongest hint yet the government will get rid of the policy – introduced by the Tories in 2017 – in full at the Budget next week. She said it was not right that a “child is penalised because they are in a bigger family” as she vowed to cut the number of kids in poverty.
Gambling taxes
The Treasury has been looking at hikes to gambling taxes. Ex-Prime Minister Gordon Brown has suggested it could raise billions to fund the move to scrap the two-child benefit limit and lift hundreds of thousands of kids out of poverty.
Betting firms are subject to different levies. The biggest earner for the Treasury is the remote gaming duty, largely levied on the profits from online operations, which generates £1billion a year. The IPPR recommends more than doubling it from 21% to 50% to collect another £800million.
State pension hike
The Chancellor is expected to confirm how much the state pension will rise by next April. If it goes up in line with the triple lock, then the state pension will rise by 4.8%. Under the triple lock guarantee, the state pension increases every April in line with whichever is the highest of earnings growth in between May to July, inflation in September, or 2.5%.
Wage growth for May to July was confirmed to be 4.8% and inflation is 3.8% – so wage growth should be the measure used to increase the state pension. This means the full new state pension should increase from £230.25 to £241.30 a week in April 2026. The old basic state pension should increase from £176.45 to £184.90 a week.
Salary sacrifice
The Chancellor is said to be looking at introducing a new £2,000 yearly cap on how much money can save into your pension through salary sacrifice schemes. Salary sacrifice allows you to give up some of your salary for a non-cash benefit, such as pension contributions. As this exchange happens before tax and National Insurance are calculated, both the employee and employer typically save on National Insurance.
here is currently no cap on how much you can save into your pension through salary sacrifice, although there is an overall annual allowance of £60,000 for how much you can pay into your retirement pot before you pay tax.
Analysts have warned that capping salary sacrifice pensions runs the risk of savers having less in their pots when they retire, or some workplaces closing their schemes altogether.
Council tax
One organisation – Fairer Share – has suggested replacing council tax and stamp duty with an annual tax reflecting the current values of homes could raise £10billion for the Treasury.But it is unlikely the Chancellor will unveil such a measure next week. Instead, Ms Reeves is reportedly looking at a new tax on high-value properties in the top bands G and H in order to raise cash.
Cigarettes and alcohol
Expect the cost of cigarettes to go up if the Chancellor makes changes to tobacco duty, which is a tax charged to companies making or importing cigarettes in the UK.
When tobacco duty is increased, the cost is filtered down to customers through higher prices in stores. In the last Budget, tobacco duty was raised in line with RPI inflation plus 2%, with an additional, one-off increase of 10% above RPI for hand-rolling tobacco.
The average price of a pack of cigarettes is around £16 varies massively depending on the brand. Most alcohol duty rates increased by RPI at 3.6% this February, in line with RPI inflation.
At the same time, a new system taxing wines and spirits based on their strength was also introduced. However, duty on draught products – or pints pulled in pubs – was reduced by 1.7%. The Wine and Spirit Trade Association has warned consumers could be hit with further increases if Ms Reeves puts up alcohol duty by RPI at an estimated 4.5%.
Tourist taxes
Mayors across England have previously called on the Treasury to allow them to introduce tourist taxes to help fund cash-strapped public services. Different forms of tourist taxes already exist in European holiday hotspots including Spain and France.
The government has previously said there are “no plans” for a tourist tax in England. But there is speculation the Chancellor could use the Budget to announce new powers for local leaders to introduce taxes for overnight stays.
Fuel duty and electric cars
The levy on petrol and diesel used to rise in line with inflation but was frozen in 2011. A temporary 5p cut was also introduced in 2022-23 but has been maintained. In total, fuel duty is set to bring in £24.4billion for the Treasury this year. Any rise – ending over a decade of freezes – would be politically difficult.
But there has been speculation drivers of electric vehicles could face a new levy with a pay-per-mile charge from 2028. Reports have suggested this could be charged at 3p per mile on top of other road taxes.
