Chancellor Rachel Reeves has delivered a shock second Budget in which she confirmed more than £30 billion in tax rises and abandoned earlier assurances that “working people” would be protected from higher taxes.
Instead, she told MPs she was calling on “everyone to do their bit” as most households will now be worse off and middle-income families will have to bear the brunt.
While benefits, pensions and minimum wages will rise, a sweeping package of tax increases – combined with frozen thresholds – will see the disposable income of millions of people fall further. Business owners have criticized the plans, with some calling them a “budget for benefits.”
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Below is a breakdown of the impact on different groups.
Who loses
Employees use salary sacrifice
One of the most significant changes is the cap on Social Security relief for wage-related pension contributions. From April 2029, only the first £2,000 of annual contributions will be tax-free – a significant change from the current unlimited allowance.
For someone earning £50,000 and contributing 5%, this equates to an estimated additional tax of £75 per year; for a £100,000 earner about £450. Employers who also lose NI relief will face even higher costs and may respond by reducing their own pension contributions.
Pension specialists warn of long-term consequences. Hargreaves Lansdown calculates that a 22-year-old earning £25,000 could retire with £57,000 less if employer contributions stagnate as a result of the change.
Earners are affected by frozen thresholds
Reeves has extended the freeze on income tax thresholds until 2031, drawing more workers into higher tax brackets as wages rise. This means that more estates are subject to inheritance tax and more profits are subject to capital gains tax.
A worker earning £50,000 this year will pay £8,165 more in tax between 2020 and 2031 due to frozen tax rates, according to an analysis.
Owner of high-quality real estate
Houses in England valued at over £2 million will face a new surcharge of between £2,500 and £7,500 per year. The fee, which will increase annually in line with inflation, affects around 100,000 homeowners but is expected to have a wider impact.
To administer the levy, the Chancellor is ordering a reassessment of tax brackets F-H, raising concerns that many homes last assessed in 1991 will be moved into higher council tax brackets. Property analysts warn this could destabilize a market already under pressure as the government tries to build 1.5 million new homes.
Drinkers, smokers and gamblers
Alcohol taxes will rise in February in line with the RPI inflation measure: 13p per bottle of wine, 11p per secco and 38p per gin. The tobacco tax will rise above inflation and a new e-cigarette tax remains planned.
The gambling sector is facing one of the sharpest declines. The tax on online gambling winnings rises from 21% to 40% and the online betting tax rises from 15% to 25%, although the bingo tax is abolished.
savers and investors
From April 2027, the ISA cash grant for under-65s will be capped at £12,000, with £8,000 of the £20,000 grant earmarked for investment. The Chancellor has also raised taxes on dividends, savings and investment income by two percentage points, saying it is “not fair” for capital gains to have lower rates than profits.
Industry leaders described the ISA change as a blow to financial confidence at a time when households are trying to build savings.
Drivers – especially electric vehicle drivers
Electric vehicle owners will have to pay a new road charge of 3p per mile from 2028 to replace lost fuel tax revenue.
Meanwhile, petrol and diesel drivers will receive temporary relief: the 5p fuel duty cut will be extended until September 2026 before being phased out.
vacationers
Mayors in England will be given the power to introduce a tourist tax on overnight stays. The levy is expected to be around £1 per night, but councils have flexibility in the final design.
Who wins
Large, low-income families
Reeves eliminated the two-child benefit cap and gave significant increases to larger, low-income families. The OBR estimates 560,000 families will benefit, with around 18,000 households gaining more than £14,000 a year.
Universal Credit, PIP, child benefit and other working age benefits will rise by 3.8% in April. In 2026, free school meals will be extended to all households on Universal Credit and the Help to Save scheme will become permanent.
low-wage workers
The national living wage rises to £12.72 per hour, an annual increase of around £700 for a full-time worker. The increase is part of a longer-term plan to introduce a pay rate for single workers aged 18 and over.
Train passengers
Regulated rail fares have been frozen for 2025, the first blanket freeze since 1996. Labor claims commuters will save more than £300 a year on certain routes.
State pensioner
The state pension will rise by 4.8% under the triple lock, increasing the full new state pension by £550 a year. Some pensioners under the old system will receive a gain of £440. However, further increases could result in pensioners who do not pay tax today exceeding the personal allowance of £12,570 and incurring new tax liabilities.
Households are faced with high energy bills
Reeves says the average household will save £150 a year after scrapping a Conservative-era green levy which she says adds £1.7bn a year to bills.
