British Chancellor Rachel Reeves presented her second annual budget on Wednesday, introducing record-high taxes while promising measures to tackle inflation and boost economic growth. The tax hikes, worth £26 billion, have overshadowed other announcements in the budget.
Reeves said the plan balances the need to reduce inflation, support households, and fuel public investments. The budget also includes energy bill cuts, frozen fares, and extended fuel duty relief.
UK Budget 2025: Historic Tax Increase & ‘Stealth Tax’
Reeves’ budget raises the UK’s tax revenue to 38% of GDP over the next five years — the highest level in history. The £26 billion hike will primarily affect workers as tax thresholds remain frozen for three years.
This means more than 1.7 million people could move into higher tax brackets as salaries rise, a move critics have called “taxation by stealth.”
Reeves also targeted high-value property owners with a new council tax surcharge for homes over £2 million. She announced a 2% increase in income from dividends, savings, and property.
“Tax hikes are necessary to manage inflation and fund public investments,” Reeves said, defending the changes despite criticism that they violate Labour Party promises.
UK Budget 2025: Measures to Ease Household Costs
To ease pressure on households, Reeves announced several relief measures:
- A £150 reduction in household energy bills starting April 2026, by ending the Energy Company Obligation (ECO) scheme and funding 75% of the Renewables Obligation.
- A one-year freeze on regulated train fares.
- Prescription charges under the NHS frozen for a year.
- Extension of the 5-pence-per-litre relaxation on fuel duty.
The government estimates these steps could reduce inflation by 0.4 percentage points, while keeping economic growth on track. Reeves emphasized that relief measures focus on targeted consumer support rather than demand-side curbs that could slow growth.
Public Investments to Drive Growth
The budget also promises up to £120 billion in public investments, marking the highest level in four decades. Reeves said the investment boost will fund infrastructure, green energy, and technology projects, aiming to stimulate growth and create jobs across the UK.
“Public investments will be at the highest point in four decades,” she said. “We aim to fuel growth without worsening inflation.”
Critics Slam Budget for Broken Promises
Critics argue that Reeves’ budget contradicts Labour’s election manifesto. After last year’s £40 billion tax hike, many expected lower or stable taxes to support households. Some analysts warn that the combination of frozen thresholds and new surcharges could reduce disposable income and consumer spending.
“The budget relies heavily on hidden taxes,” said an opposition MP. “Workers will feel the pinch, while high earners are only slightly impacted.”
Balancing Growth, Inflation, and Public Sentiment
The UK budget highlights a difficult balancing act: raising revenue to fund investments while shielding households from rising costs. Analysts say the success of Reeves’ plan will depend on how effectively targeted relief measures offset higher taxes and how well the £120 billion investment stimulates growth without stoking inflation.
