Chancellor Rachel Reeves has unveiled her second Budget since coming to power, with £26billion of tax rises funding public spending and an end to the two-child benefit limit
After months of speculation Rachel Reeves has finally delivered her second Budget.
Among the measures announced on the most important day of her year – which was blighted by a blunder by the Office for Budget Responsibility – was ripping up the two-child benefit limit and freezing rail fares.
Economists will spend days poring over the Chancellor’s policies, which controversially include a freeze on income tax thresholds. She unveiled £26billion of tax rises, saying those with the “broadest shoulders” would bear the heaviest load.
The Mirror takes a look at some of the details buried within documents that you might have missed.
READ MORE: Every Budget bombshell you need to know – major benefit change and tax rise
Fuel duty sting to come
It is worth noting that the freeze on fuel duty is only in place until September 2026.
The OBR said that the 5p cut – which has been in place since 2022 – will be reversed through a “staggered approach”. From April 2027 it will go up by the retail prices index (RPI).
This sets up another difficult decision next year on whether to keep it in place. Ms Reeves told the Commons: “Under current plans, the temporary 5p cuts of fuel duty that was introduced during the pandemic will come to an end in April and fuel duty will be updated in line with inflation.
“But I know that the cost of travelling to and from work is still too expensive. And so I’m extending the 5p cuts until September 2026.”
Disposable Income
While there is help for families on the cost of living, the OBR has downgraded growth in real household disposable income to just a quarter of a percent a year.
In its economic and fiscal document, it said it had revised down the starting level of real household disposable income per person by £150 to £26,300 (compared to its March estimate).
The Budget watchdog said growth in household incomes “slows sharply” from 3% in 2024/25 to 0.5% in 2025/26 and 0.25% in 2026/27. It said the estimates are because it expects “gradually slowing real wage growth and rising taxes”.
Tax rises after election
While the Chancellor raised taxes in the Budget, according to the Government’s Budget document, this will increase further after the next election.
The next UK general election must be held by August 15 2029, and the document says total tax in 2029-30 will rise by £23,150 million.
ID cards cost
The OBR forecast says digital ID cards will cost £1.8billion in total over the next three years. The Government has not explained how this will be funded, the budget watchdog says, suggesting cuts elsewhere.
It comes days after MPs were told the digital ID policy has been so badly botched that it is now “irrecoverable”. Ministers want to make digital identification compulsory to prove people have a right to work in the UK by 2029.
Fall in school spending warning
Schools could face a fall in spending due to changes in the funding model of Special Educational Needs and Disabilities, the OBR warned.
The Government has announced that SEND costs will be fully absorbed within the day-to-day operational costs of the Department for Education (DfE). But it has not set out any specific plan on how this new cost – which the OBR estimates to be £6billion in 2028-29 – will be supported.
If it were fully funded by the Department for Education’s £69billion core schools budget, the OBR estimates this would see a 1.7% fall in mainstream school spending per pupil, rather than the 2.4% increase promised by ministers.
But a DfE spokeswoman said: “This claim is incorrect – we are clear that any deficit will be absorbed within the overall government budget. These projections also do not account for the much-needed SEND reforms this government will bring forward.”
Hit to electric car sales
Ms Reeves’ new mileage tax on electric vehicles will result in hundreds of thousands fewer cars being sold.
The OBR estimates that by 2031, there will be 440,000 less cars being sold. It states: “This new charge is likely to reduce demand for electric cars as it increases their lifetime cost.”
It is expected to cost drivers around £240 extra a year. However the OBR says 130,000 lost sales will be offset by other measures in the Budget which will drive up the number of purchases.
A Treasury consultation document revealed drivers of electric cars will be required to estimate their mileage for the year and either pay upfront or spread their payment across the year. Drivers will submit their actual mileage at the end of the year, and either make an extra payment or receive a credit for future use as required.
Motorists will have their mileage checked annually.
Waste squad scrapped
Government waste squad the Office for Value for Money (OfVM) – which was established after Labour came to power – has been scrapped.
Documents released alongside the Budget describe the OVfM as a “small, time-limited organisation” and said its duties had folded into the Treasury. The Government said: “HM Treasury has undertaken and published an evaluation of the OVfM, which concluded that the OVfM had delivered its remit, its recommendations are likely to have a meaningful impact and it had made effective use of its resources.”
Before the general election Ms Reeves pledged: “With our strong fiscal rules and our Office for Value for Money, Labour will root out waste and make our economy stronger.”
Crackdown on online shops
A crackdown on international online retailers that are undercutting high street shops was announced in the Budget.
Ms Reeves confirmed she is closing a loophole that allows overseas online firms to avoid customs duties on small parcels to the UK. The Chancellor said she is to stop such firms from “undercutting our high street businesses by ensuring customs duty applies on parcels of any value” to “support a level playing field in retail”.
Currently, overseas retailers can send small parcels worth less than £135 to the UK without paying import duties – something British high street retailers have criticised as creating an “uneven playing field”.
Retailers including Next, Superdry and Primark have urged the Government to overhaul the policy, arguing it allowed international retailers such as Shein and Temu to undercut them on price.
Changes to pensions
Experts have warned that workers and employers will feel the “pain” from a £2,000 salary sacrifice cap on pensions announced in the Budget
The change means that salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from national insurance from April 2029. Contributions above £2,000 will be treated as ordinary employee pension contributions in the tax system and subject to national insurance contributions.
Yvonne Braun, director of policy, long term savings, health and protection, at the Association of British Insurers (ABI), said: “Capping salary sacrifice for pension saving is a short-sighted tax grab which will lower pension saving and undermine people’s retirement security.”
Rise in alcohol duty
The Chancellor’s decision to raise alcohol duty in line with inflation has been called a “sad day” for the nation’s distillers, pubs and wider hospitality sector.
Alcohol duty normally rises in line with the Retail Price Index from September – which was 4.5%. Industry leaders had urged the Government to freeze duty in this year’s Budget, arguing members were still reeling from the tax hikes introduced in February, and the additional burden of the new glass tax.
The Wine and Spirit Trade Association (WSTA) said RPI set at 3.66% would see duty go up by 11p on a bottle of Prosecco, 13p on a bottle of red wine and 38p for a bottle of gin from February 1. When the duty increases kick in next year wine and spirit prices will have risen by almost £1 a bottle in a year, taking into account the ongoing burden of duty rises, the new waste packaging tax and VAT.
Alcohol prices are up 5.8% on last year, according to official figures. Last year, drinkers faced a 3.6% hike to alcohol duty, adding 54p to a bottle of wine and gin by 32p – while draught duty was cut by 1.7% – or a penny off a pint – in the 2024 Budget.
Questions over tax rises for tech giants
A review into the proposed Digital Services Tax, published alongside the Budget, has raised questions about whether tech giants like Elon Musk could be spared.
The tax is forecast to add over £6billion to the public finances through 2030/31 – raising revenue from online giants such as X. But today’s document said ministers are “committed to remov[ing] it once an appropriate global solution on the reallocation of taxing rights is in place”.
It comes amid fears of meddling by US firms and the White House. Lib Dem deputy leader Daisy Cooper said: “If the government is preparing to slash taxes for the world’s richest man, Elon Musk, while hiking taxes for millions of British families, this would be nothing short of a scandal.
“Rather than bowing down to Trump and his US tech barons, it’s about time the Government asks those social media giants who are making billions in profit to pay their fair share.”
