To a raucous House of Commons, the Chancellor delivered the pivotal Budget of this Parliament. Could the budget solve the trilemma of keeping the markets, the voters and the backbenchers happy – or would it be her last, as Kemi Badenoch immediately predicted? 

Derailed before she even stood up by the OBR accidentally revealing most of the Budget early, she recovered quickly. Visibly growing in confidence, she enjoyed her attacks on her political opponents: the SNP, the Conservatives, Reform and even a decent joke at the Green Party’s expense – Zack Polanski has officially become a threat. 

She had three equally important audiences today: in order of chronological peril the bond markets, her Labour backbenches, and then of course the voters. Lose the support of any of these and she would be toast, with the voters having longer to pass their verdict. 

The first of these appears to have been largely reassured by the greater than expected additional fiscal headroom. At the time of writing the FTSE is up 0.68% on the day, and 10-year Government bond yields have fallen to 4.46%. 

She appears to have also pleased (for now) her restive backbenches with her long and passionate explanation of why she is lifting the two-child benefit cap from 2026, her taxes on properties worth more than £2 million, and her £150 cut to average household energy bills – the closest she came to producing a rabbit from the hat. Well it would have been had the OBR not strangled it first.  

The voters’ verdict will take longer to discern with the May elections in Scotland, Wales and in councils across England - a moment of real danger for Reeves and the Prime Minister.  It was a deeply political speech with references to ‘fairness’ and ‘my choices’ throughout, as she made the case for £26 billion of tax rises to avoid both austerity and ‘reckless borrowing’. Will voters be relieved that the tax changes could have been worse, or will her claims of fairness unravel over the next 48 hours? 

In response, Kemi Badenoch described the budget as a ‘total humiliation’ and on one level she is right – this is certainly not the Budget the Chancellor wanted or expected to give after last year’s tax raid on business. But the Budget’s impact on the real economy and on real living standards will, as always, be the key determining factor in ballot boxes in 2026 and then again in 2029.  

THE KEY MEASURES ANNOUNCED TODAY

 Economic and fiscal outlook (from OBR)

• Real GDP to grow by 0.3% slower than previously projected, due to lower underlying productivity growth, equivalent to £16bn less in tax receipts by 2030.

• The Budget increases spending in every year and by £11 billion in 29/30, mainly due to abandoned welfare reforms and ending the two-child benefit gap.

• The Budget raises taxes by £26bn by 2029-30, bringing the tax take to 38% of GDP in 2030-31. Net impact of tax and spend increases average borrowing by £5bn over 25/26, 26/27, 27/28 but then reduces it by £13bn on average in 29/30 and 30/31.

• Inflation (CPI) is forecast to be 3.5% in 25/26, 2.5% in 26/27, 2% in 27/28, 2% in 28/29, 2% in 2030.

• The Economy will grow by 1.5% in 2025/26, 1.4% in 2026/27, 1.5% in 27/28, 1.5% in 28/29 and 1.5% in 29/30.

• Public sector net borrowing is forecast to rise from £127.5 billion last year to £138 billion this year, then falling to £67 billion by 2030.

• Current budget balance in deficit of £8.8 billion moving into surplus of £3.9bn in 28/29, £21.7bn in 29/30, £24.6bn in 30/31

Fiscal rules and headroom

• Fiscal rules – the Stability and Investment rules stay in place:
  o   ‘Stability Rule’: to move the current budget into balance, with borrowing only for investment.
  o   ‘Investment rule’: to reduce net financial debt (public sector net financial liabilities) as a proportion of GDP.

• Fiscal headroom more than doubled from £9.5 billion to £21.7 billion.

• Fiscal rules to henceforth be assessed annually rather than bi-annually.

Taxes

• No increase to the rates of income tax, VAT or employee national insurance – in line with Labour’s election manifesto

• Personal tax and employer National Insurance Contributions (NICs) thresholds frozen for a further three years from 2028 to 2031.

• Inheritance tax thresholds frozen until 2031.

• £26 billion of additional taxes including:
  o   £1 billion increase in gambling taxes. Remote gaming duty increases from 21% to 40%, online betting 15% to 25%, no changes to in-person or horseracing tax, and abolishing bingo duty from 2026.
  o   Dividends, property and savings income up by 2%, with the additional rate also up by 2%
  o   £2k annual cap on salary sacrifice schemes from 2029
  o   Pay per mile levy on electric cars, 3p per mile for electric cars 1.5p per for mile for plug-in hybrid
  o   Delay to changes to landfill tax
  o   Cuts to writing down capital allowances from 18% to 14%
  o   A high value council tax surcharge on properties worth over £2 million from 2028.
  o   Reduced capital gains tax relief on employee ownership trusts from 100% to 50%

Public spending

• From its peak during the pandemic of 52.3% of GDP, total public spending fell to 44% of GDP in 2024-25. It is forecast to rise to 45% of GDP in 2025-26 and then to fall gradually over the remainder of the forecast to 44.3% of GDP in 2030-31.

• Departmental expenditure is expected to rise until 2027-28, before falling.

• Confirmed removing Police & Crime Commissioners

• Confirmed 2.6% of GDP spent on defence by 2027

• Two child benefit cap to be entirely lifted from 26/27, lifting a projected 450,000 children out of poverty. 

• Announced Digital ID scheme by the end of parliament

• Luxury cars to be removed from Motability schemes

• Abolish access to Class 2 Voluntary NICs for those living abroad

• The £6 billion deficit of special needs schooling to be entirely absorbed by the Department for Education

Retail Investment

• From April 2027, the government will implement reforms to the ISA system, keeping the full £20,000 allowance, but designating £8,000 exclusively for investment. Over 65s will retain the full cash allowance.

• Delay ISA digitalisation until April 2028 and maintain the ISA subscription limits until 2030-31

Other measures

• 250 Neighbourhood Health Centres to be rolled out

• £13 billion of SR25 funding via integrated settlements from 2026-27 to 2029-30 for seven Mayoral Strategic Authorities

• Cost of apprenticeships to be free for SMEs

• New national license framework to allow more late-night opening

• Business rates changes, introducing permanently lower tax rates for retail, hospitality and leisure properties

• Salary sacrifice into pensions to be capped at £2000

• National Living Wage will increase by 4.1% to £12.71 per hour from April 2026

• Extending the 5p fuel duty cut until the end of August 2026 and cancelling the planned increase in line with inflation for 2026‑27

• Scrapping fuel levies, £150 cut in average household bill from April 2026