Chancellor Rachel Reeves delivers the 2025 budget | Watch the full speech

Key Concepts

• Economic Rebuilding and Fiscal Responsibility: The core theme revolves around the government's strategy to rebuild the economy, emphasizing stability, investment, and reform, while adhering to fiscal rules and reducing debt.
• Investment in Public Services: A significant focus is placed on increasing investment in the National Health Service (NHS), education, and infrastructure, contrasting with perceived Conservative cuts.
• Taxation and Fairness: The budget introduces tax reforms aimed at fairness, ensuring the wealthiest contribute more, and closing loopholes, while seeking to minimize the burden on working people.
• Support for Businesses and Entrepreneurs: Measures are outlined to encourage business growth, innovation, and investment, particularly for scale-up businesses and entrepreneurs.
• Cost of Living and Inflation Reduction: The government highlights its commitment to reducing inflation and the cost of living for families through various measures.
• Welfare Reform and Child Poverty Reduction: Significant reforms to the welfare system are proposed, with a particular emphasis on lifting children out of poverty and addressing the "two-child limit."
• Regional Investment and Devolution: The budget includes provisions for investment across the United Kingdom, with a focus on devolving funding and empowering local and regional leaders.

Economic and Fiscal Outlook

The Chancellor presented the government's economic and fiscal outlook, emphasizing a plan for rebuilding the economy through stability, investment, and reform. This plan aims to cut NHS waiting lists, reduce the cost of living, and decrease debt and borrowing. The government has changed its fiscal rules and raised public investment to its highest level in four decades. Taxes on businesses and the wealthiest were raised to address a £22 billion black hole in public finances, with these funds directed towards the National Health Service.

Key Points:

• OBR Economic and Financial Outlook: The Office for Budget Responsibility (OBR) released its outlook on the government's website before the statement, which the Chancellor described as a "serious error." The OBR has taken full responsibility for this breach.
• Economic Growth Forecast: The OBR has upgraded Britain's growth forecast for the current year from 1% to 1.5%, aligning with projections from the IMF, OECD, and Bank of England.
• Productivity Growth: The OBR has reduced its expectation for productivity growth by 0.3 percentage points to 1% by the end of the forecast period. This is attributed to the legacy of the previous 14 years, Brexit, the pandemic, and damaging decisions by the previous government, including cutting public spending and starving the economy of investment.
• Fiscal Rules and Debt Reduction: The government is committed to meeting its stability rule, which requires day-to-day expenditure to be met through tax receipts, and an investment rule that allows for increased investment while debt is on a downward path.
  • Borrowing is forecast to fall as a share of GDP in every year of the forecast.
  • Net financial debt will be lower at the end of the forecast than it is today.
  • The headroom against the stability rule will be more than doubled to £21.7 billion, meeting the rule a year early.
  • Public sector net borrowing is projected to be £112.1 billion (3.5% of GDP) in 2026-27, falling to £67.2 billion by 2030-31.
  • Net financial debt is projected to be 83.3% of GDP in 2026-27, falling to 82.2% by 2030-31.
• Comparison with Previous Government: The Chancellor contrasted the current government's approach with the previous Conservative government, stating that under the Conservatives, the cost of the welfare system increased by nearly 1 percentage point of GDP (£88 billion) in five years, and they doubled the national debt.

Investment and Business Support

The budget outlines a comprehensive strategy to foster economic growth through private and public investment, with a particular focus on supporting entrepreneurs, scale-up businesses, and key industrial sectors.

Key Initiatives:

• Support for Entrepreneurs and Scale-ups:
  • Widening eligibility for enterprise incentives to help scale-ups attract talent and capital.
  • Expanding the Enterprise Management Incentive (EMI) for tax relief share options.
  • Re-engineering Enterprise Investment and Venture Capital Trust schemes to support companies as they grow.
  • Introducing UK listings relief: a three-year exemption from stamp duty reserve tax for companies listing in Britain.
  • Launching a call for evidence on how the tax system can better support entrepreneurs.
  • Targeted review with founders and investors to make the UK a more attractive place to grow businesses.
• Retail Investment System Reform:
  • Reforming the ISA system from April 2027, maintaining the £20,000 allowance but designating £8,000 exclusively for investment.
  • Over 50% of the ISA market has signed up to launch new online hubs to help people invest in Britain.
• Corporate Tax and Business Investment:
  • Maintaining a competitive corporation tax rate, the lowest in the G7.
  • Retaining the generous full expensing offer for business investments.
  • Introducing a new 40% first-year allowance for businesses to write off more of their investment costs upfront.
• Public Investment:
  • Maintaining an additional £120 billion of investment in transport, energy infrastructure, and housing.
  • Committing investment for the Lower Thames Crossing, city region transport, the Midlands Rail Hub, and Transpennine route upgrades.
  • Providing further funding to increase planning capacity through a new skills offer.
  • Investing in nuclear power (Sizewell C and Hinkley Point C).
  • Committing to slash electricity prices for manufacturing businesses.
  • Investing in defense spending, with specific investments in Portsmouth, Barrow, and Plymouth, and supporting Team Derby.
  • Stepping in to save British Steel in Scunthorpe and investing in Sheffield Forgemasters.
  • Changing government procurement to "buy British" for national security, steel, shipbuilding, and AI.
• Devolution and Regional Investment:
  • Devolving £13 billion of flexible funding for seven mayors to invest in skills, business support, and infrastructure.
  • Extending business rates retention pilots in the West of England, Liverpool City Region, and Cornwall until 2029.
  • Providing £30 million for the Kernow Industrial Growth Fund.
  • Establishing the Lead City Fund for local regeneration projects.
  • Allocating £20 million for the new Peterborough Sports Quarter and £16 million for a science center in Darlington.
• Investment Across the UK:
  • Additional £370 million for the Northern Ireland Executive.
  • £55 million for the Welsh Government.
  • £820 million for the Scottish Government over the spending review period.
  • In Northern Ireland: £17 million to support businesses and strengthen the UK internal market, and backing advanced manufacturing through the Northern Ireland Enhanced Investment Zone.
  • Wales to host two AI growth zones, creating over 8,000 jobs, supported by a £10 million investment in semiconductors.
  • Building the UK's first small modular nuclear reactors with Rolls-Royce at Wylfa in Anglesey.
  • In Scotland: over £14 million for low-carbon technologies in Grangemouth, £20 million to renew infrastructure at Inchgreen, and £20 million to redevelop Coatbridge town center and seafront.
  • Supporting the UK's biggest ever warship export deal with Norway to build frigates in Glasgow.

Tax Reforms and Fairness

The budget introduces a series of tax reforms aimed at increasing fairness, ensuring the wealthiest contribute more, and closing loopholes, while minimizing the impact on working people.

Key Tax Measures:

• Income Tax and National Insurance:
  • Maintaining all income tax and equivalent national insurance thresholds at their current level for a further three years from 2028.
  • Ensuring individuals on the basic or new state pension do not pay small amounts of tax through simple assessment from April 2027.
  • Keeping the student loan repayments threshold at its 2026-27 level for three years.
• Tax on Property, Savings, and Dividends:
  • Increasing the basic and higher rates of tax on property, savings, and dividend income by two percentage points.
  • Increasing the additional rate of tax on property and savings income by two percentage points.
  • 90% of taxpayers will still pay no tax on their savings after these reforms.
• Wealth Taxation:
  • Reforms made last year are expected to raise an additional £8 billion per year by 2030 from wealth.
  • Increased taxes on private equity, private schools, and private jets.
  • Abolished the non-dom tax regime.
  • Changes to cap trust charges and prevent avoidance.
  • Reformed inheritance tax on agricultural and business assets, aligning reforms with wider inheritance tax rules by allowing the transfer of the 100% relief allowance between spouses.
• High Value Council Tax Surcharge:
  • Introducing an annual £2,500 charge for properties worth more than £2 million, rising to £75,000 for properties worth more than £5 million, from 2028.
  • This new surcharge will raise over £400 million by 2031 and will be charged on less than the top 1% of properties.
• Pension Tax Relief:
  • Introducing a £2,000 cap on salary sacrifice into a pension, with contributions above this taxed as other employee pension contributions. This change will come into effect in 2029.
• Capital Gains Tax:
  • Reducing the 100% relief from capital gains tax on business sales to employee ownership trusts to 50%.
• Business Rates:
  • Introducing permanently lower tax rates for over 750,000 retail, hospitality, and leisure properties, the lowest rates since 1991.
  • These lower rates will be funded through higher rates on properties worth more than £500,000.
  • A package of support worth over £4.3 billion over the next three years for properties seeing a large increase in their bill.
• Customs Duty:
  • Stopping online firms from undercutting high street businesses by ensuring customs duty applies on parcels of any value.
• Motoring Taxes:
  • Exempting search and rescue vehicles from vehicle excise duty.
  • Introducing electric vehicle excise duty on electric cars (3p per mile for electric cars and 1.5p for plug-in hybrids) to help double road maintenance funding in England.
  • Increasing the threshold for the expensive car supplement on electric vehicles to £50,000, saving over a million motorists £440 a year.
  • Providing £1.3 billion additional funding for the electric car grant, extending it to 2030.
  • Investing a further £200 million to accelerate the rollout of EV charging and 100% business rates relief for EV charge points for the next decade.
• Landfill Tax:
  • Not converging towards a single rate but preventing the gap between the two rates from widening to balance the need to address tax avoidance.
• Tobacco, Alcohol, and Vaping Duties:
  • Continuing planned uprating for tobacco duties.
  • Uprating alcohol duties by inflation.
  • Introducing a vaping products duty in 2026.
• Gambling Taxes:
  • Increasing remote gaming duty from 21% to 40%.
  • Increasing duty on online betting from 15% to 25%.
  • No change to taxes on in-person gambling or horse racing.
  • Abolishing bingo duty entirely from April next year.
  • These reforms are expected to raise over £1 billion per year by 2031.

Public Services and Welfare Reform

The budget emphasizes strengthening public services, particularly the NHS, and reforming the welfare system to reduce waste, improve efficiency, and lift children out of poverty.

Key Measures:

• National Health Service (NHS):
  • Maintaining public investment and driving efficiency in government spending.
  • Reinvesting savings back into care, with more nurses, GPs, and appointments.
  • Announcing £300 million of investment in technology to improve patient service.
  • Announcing 250 new neighborhood health centers, with over 100 to be delivered by 2030.
  • The Labour Party founded the NHS and will renew it.
• Defense Spending:
  • Reinvesting savings back into national security.
  • The UK is set to spend 2.6% of GDP on defense by April 2027.
• Tackling Fraud, Error, and Waste:
  • Clawing back excess profits from the use of hotels to house asylum seekers.
  • Consulting on reforms to indefinite leave to remain and access to taxpayer-funded benefits.
  • Introduction of digital ID to break the link between illegal migration and illegal working.
  • HMRC and the Fair Work Agency to crack down on illicit businesses, enforce the minimum wage, and investigate dodgy businesses.
  • New powers for HMRC to pursue promoters of tax avoidance schemes, raising nearly £10 billion a year by 2030.
  • Chasing down nearly £400 million from dodgy pandemic spending and contracts.
• Welfare System Reform:
  • Reforming the system to protect those who cannot work and empower those who can.
  • Bringing back face-to-face assessments for disability benefits.
  • Changes to Universal Credit expected to get 15,000 people back into work.
  • Abolishing the "rape clause" (the two-child limit) from April, fully costed and funded. This is expected to lift 450,000 children out of poverty.
  • Reforms to the Motability Scheme to reduce generous taxpayer subsidies and remove luxury vehicles.
  • Abolishing access to Class 2 voluntary national insurance contributions for people living abroad, increasing the time someone has to live or work in Britain to 10 years and increasing contributions.
• Education and Libraries:
  • Allocating funding to fix crumbling classrooms and build new schools.
  • Providing £5 million for libraries in secondary schools.
  • £10 million commitment to ensure every primary school has a school library within this parliament.
  • Providing £18 million to improve and upgrade playgrounds across England.
• Pensions:
  • Transferring the investment reserve fund of the British Coal Staff Superannuation Scheme to its members.
  • Indexing for inflation pensions accrued before 1997 in the Pension Protection Fund and the Financial Assurance Scheme.
  • Exempting all payments from the infected blood scheme from inheritance tax.
• Youth Guarantee and Apprenticeships:
  • Providing £820 million over the next three years for a new youth guarantee, offering every young person a place in college, an apprenticeship, or personalized job support.
  • After 18 months, 18 to 21-year-olds will be offered paid work, not benefits.
  • Funding to make training for under-25 apprenticeships completely free for small and medium-sized enterprises.

Cost of Living and Inflation

The government is committed to reducing the cost of living and inflation, with measures aimed at providing immediate relief for families and ensuring long-term energy security.

Key Actions:

• Inflation Reduction: The OBR confirmed that inflation is coming down faster and will be a full 0.4 percentage points lower next year as a direct result of the budget.
• Energy Bills:
  • Scrubbing the Conservative Eco Scheme, which cost households £1.7 billion a year on their bills and cost 97% of families in fuel poverty more than it saved.
  • Keeping a promise to get energy bills down with a £150 cut from the average household bill from April next year.
  • Investing in energy security, nuclear and renewable energy, and insulation through the Warm Homes Plan.
• Bus Fares, Prescription Charges, and Rail Fares:
  • Extending the bus fare cap.
  • Freezing prescription charges.
  • Freezing rail fares for the first time in 30 years.
• State Pensions and Wages:
  • Increasing the basic and new state pension by 4.8%, an increase of £440 per year for the basic state pension and £575 per year for the new state pension.
  • Increasing the national living wage to £12.71 an hour and the minimum wage for 18 to 20-year-olds to £10.85 an hour.
  • Wages have risen by more since the Labour government was elected than in 10 years under the last government.
• Fuel Duty:
  • Extending the 5p cut to fuel duty until September 2026.
  • Bringing in new rules to mandate petrol forecourts to share real-time price rises through a new fuel finder.
• Support for High Streets and Pubs:
  • Supporting the Great British Pub through a new national licensing framework.
  • Package of regulatory changes for UK hospitality and the British Retail Consortium.

Conclusion and Key Takeaways

The budget presented by the Chancellor outlines a clear Labor vision for the country, centered on economic stability, investment in public services, and a fairer tax system. The government aims to move away from austerity and reckless borrowing, focusing instead on cutting debt, reducing waiting lists, and lowering the cost of living. Key takeaways include:

• Commitment to Fiscal Rules: The government is adhering to its fiscal rules, with projections showing falling borrowing and a downward path for debt.
• Prioritizing Public Services: Significant investment is being channeled into the NHS, education, and infrastructure, aiming to reverse the perceived decline under previous Conservative governments.
• Fairness in Taxation: The tax reforms are designed to ensure that the wealthiest contribute more, while minimizing the burden on working people and closing loopholes.
• Addressing Child Poverty: The removal of the two-child limit in welfare is a flagship policy aimed at significantly reducing child poverty.
• Economic Growth through Investment: The strategy relies on a combination of private and public investment, coupled with reforms to support entrepreneurs and businesses.
• Delivering on Promises: The government asserts that it is delivering on its manifesto commitments, from cutting the cost of living to reforming the welfare system.

The Chancellor concluded by stating that these are "Labor choices" for a fairer, stronger, and more secure Britain, promising to cut debts, cut waiting lists, and cut the cost of living.