26th Nov 2025 13:54
(Alliance News) - The UK chancellor on Wednesday laid out a raft of tax raising measures as she seeks to increase her fiscal buffer and calm nerves in financial markets.
The increases worth an estimated GBP26 billion will be achieved through a freeze of income tax thresholds, a raid on salary sacrifice schemes and a range of smaller measures, offsetting extra spending.
Rachel Reeves delivered her second budget after an unprecedented early release of budget measures and economic forecasts by the Office for Budget Responsibility.
Rachel Reeves told MPs that the pre-budget publication of the Office for Budget Responsibility's document was "deeply disappointing and a serious error on their part".
For its part the OBR apologised.
"We apologise for this technical error and have initiated an investigation into how this happened. We will be reporting to our Oversight Board, the Treasury, and the Commons Treasury Committee on how this happened, and we will make sure this does not happen again," the OBR said.
Financial markets were volatile after the budget measures were announced with broadly favourable movements.
Bond yields fell sharply with the yield on the 10-year gilt down 4 basis points at 4.45%, while the pound jumped to USD1.3217 from a low of USD1.3135 around midday in London.
The FTSE 100 stood 58 points higher early afternoon in London close to session highs, after initial weakness in the wake of the OBR's botched release.
In her budget, Reeves set personal tax changes which the OBR estimates will increase receipts by GBP14.9 billion in 2029 to 2030, including: freezing personal tax and employer National Insurance contributions thresholds for three years from 2028 to 2029, which raises GBP8.0 billion; charging NICs on salary-sacrificed pensions contributions, raising GBP4.7 billion; and increasing the tax rates on dividends, property and savings income by 2 percentage points, raising GBP2.1 billion.
Other tax changes increase receipts by GBP11.2 billion in 2029 to 2030 and include: a reduction to the writing down allowance main rate in corporation tax, which raises GBP1.5 billion; a new mileage-based charge on battery electric and plug-in hybrid cars from April 2028, raising GBP1.4 billion; and reforms to the taxation of gambling, which raises GBP1.1 billion.
In addition, Reeves announced plans to reduce capital gains tax relief on disposals to employee ownership trusts, which raises GBP0.9 billion; a high value council tax surcharge on properties worth over GBP2 million, raising GBP0.4 billion; tax administration, compliance and debt collection measures, which raise GBP2.3 billion.
These tax rises are partially offset by a freeze to fuel duty for a further five months followed by staged increases from September 2026, costing GBP2.4 billion next year and GBP0.9 billion each year thereafter.
The budget includes several changes to business rates which will reduce rates for retail, hospitality and leisure properties, and increase rates for high value properties.
On spending, the chancellor removed the two-child limit within Universal Credit from April 2026, a measure which the government believes will reduce child poverty by 450,000 by 2029 to 2030.
The OBR estimates the measures outlined by the chancellor will increase headroom against its borrowing to GBP22 billion in 2029 to 2030, which is GBP12 billion more than in March.
Growth will be 1.4% in 2026, down from a forecast of 1.9% in March, the OBR estimated. But the economy is expected to expand by 1.5% in 2025, up from a previous estimate of 1.0%.
For 2027, the OBR cut its outlook in 2027 from 1.8% to 1.5%, in 2028 from 1.7% to 1.5% and in 2029 from 1.8% to 1.5%.
Inflation will stand at 3.5% in 2025, above 3.2% forecast in March. Price growth is expected to be 2.5% in 2026, higher than the figure of 2.1% forecast in the spring.
Productivity outlook is forecast to be 1% over the medium term, 0.3 percentage points below the estimate in March, weighing on growth and living standards.
The OBR forecasts that borrowing will fall to 4.5% of GDP or GBP138 billion in 2025 to 2026, more than the GBP118 billion forecast in March, and then fall by around 0.5% of GDP a year thereafter to reach 1.9% of GDP, or GBP67 billion by 2030 to 2031.
By Jeremy Cutler, Alliance News reporter
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