Reeves’ budget, due to be unveiled today, follows months of speculation on how to bridge the widening fiscal gap without resorting to austerity or excessive borrowing. The proposed tax hikes and cuts to tax-free allowances are expected to generate substantial revenue, but will likely stoke concerns over their impact on households, especially the most vulnerable. This budget represents a delicate balancing act, aimed at both securing long-term economic stability and addressing pressing cost-of-living challenges.
Income Tax and Welfare Reforms: A Tougher Deal for Households
A key element of the Chancellor’s strategy is the extension of the freeze on income tax thresholds until 2030. This measure, known as fiscal drag, ensures that rising wages push more people into higher tax bands, effectively increasing tax revenues without raising rates.
Welfare reforms also feature heavily in the Budget. The most significant of these is the planned scrapping of the controversial two-child benefit cap, which has limited child tax credits and universal credit for households with more than two children.
According to experts, lifting this cap could cost the government billions, but it would address long-standing concerns over child poverty. As the government seeks to provide greater financial security for families, Reeves has also committed to increasing the national minimum wage and boosting state pensions, ensuring financial support for millions of lower-income citizens.
However, there is an underlying concern about how these welfare measures will be funded. While the cap on child benefits is set to be lifted, the overall welfare budget will be squeezed, with some additional funding for initiatives such as the Neighbourhood Health Service and the expansion of NHS technology. Critics argue that these measures do not go far enough to address the root causes of financial insecurity in working households.
Tackling the Tax Deficit: Mansion Tax and EV Charges
As part of the effort to plug the £30 billion budget shortfall, Chancellor Reeves is expected to introduce a new mansion tax targeting properties worth over £2 million. This proposed levy, which would apply to homes across council tax bands F, G, and H, could bring in significant revenue from the wealthiest households. While this is a direct response to the growing inequality between high-value property owners and renters, it has already faced backlash from property owners and estate agents, who argue it could harm the housing market.
Alongside property taxes, another potential source of revenue comes from the rise of electric vehicles (EVs). With the UK shifting away from petrol and diesel cars, the government faces a reduction in fuel duties, which traditionally contributed billions to the Treasury.
According to reports, the Chancellor is considering implementing a per-mile tax for electric vehicle owners, which would offset the loss in fuel revenue. This proposal comes as part of a wider package designed to encourage greener transportation while also ensuring that the transition to electric cars does not leave the Treasury in the red.
