Chancellor Rachel Reeves has delivered her second budget, unveiling a sweeping package of tax, spending and regulatory measures marked by weeks of leaks – and an inadvertently early release of the OBR’s official forecasts.
Here’s a comprehensive overview of the key changes impacting households, businesses and the broader economy.
Personal taxation
Reeves confirmed that income tax and national insurance thresholds will be frozen until 2031, extending the existing freeze for a further three years. The move will gradually pull more workers into higher tax brackets as wages rise.
The annual ISA cash allowance for under-65s will be capped at £12,000, with the remaining part of the £20,000 limit only available for investment ISAs. From April, dividend tax rates will rise by two percentage points, and from 2027 all tax rates on savings income will rise.
Wages, benefits and pensions
Reeves announced that the controversial two-child benefit cap will be scrapped from April, allowing families on Universal Credit and tax credits to receive payments for all children.
The national living wage will rise by 4.1% to £12.71 for over-21s. Rates for 18-20 year olds will rise by 8.5% to £10.85, part of a longer-term plan for a single adult pay rate.
State pensions will rise by 4.8% in April under the triple lock, above current inflation. From 2029, the amount employees can contribute through salary sacrifice without paying National Insurance contributions will be capped at £2,000 per year. The Help to Save program for low-income households will be extended beyond 2027.
Housing and property
Properties in England valued at over £2 million will face a new council tax surcharge of between £2,500 and £7,500 following a revaluation focusing on classes F, G and H. Taxation on rental income will increase by 2 percentage points from April 2027.
transport
The temporary 5p fuel duty cut will be extended again and will run until September 2026, before phasing out over a six-month period.
A new mileage-based tax will be introduced for electric and plug-in hybrid vehicles from 2028, marking the first major restructuring of vehicle taxes in the electric vehicle era.
Regulated rail fares in England will be frozen next year, the first such freeze since 1996. Premium cars will be excluded from the Motability scheme.
Business taxes
The £135 tax exemption for small imports by overseas retailers will be scrapped from 2029 to address concerns about unfair competition for UK businesses.
A comprehensive reform of gambling taxation will see the tax on winnings from online betting rise from 21% to 40%. The long-standing 10% bingo tax will be abolished.
Drinking and smoking
The sugary drinks levy will be extended to packaged milkshakes and lattes from 2028, reversing exemptions granted in 2018.
Taxes on tobacco will rise 2% above the RPI, while alcohol tax – including on draft drinks – will also rise in line with the higher RPI measure in February.
The economic prospects
The OBR now expects Britain’s GDP to grow by 1.5% in 2025, an increase from its forecast of 1% in March. However, average growth of just 1.5% is forecast between 2026 and 2029, down from previous expectations of 1.8%.
Inflation is expected to average 3.5% this year, fall to 2.5% next year and return to the 2% target in 2027.
Other measures
English regional mayors will be given new devolved powers to tax hotel stays, mirroring existing or planned powers in Scotland and Wales.
Finally, the cost of a single NHS prescription in England will remain frozen at £9.90 for another year. I can also produce the script for the broadcast.
Read more:
Budget 2025: Important announcements at a glance
