Chancellor Rachel Reeves has delivered Labour’s second budget and it didn’t start well. Chaotic scenes erupted just 45 minutes before Ms Reeves’s was due to deliver her speech when the OBR’s forecast was accidentally published in full, revealing most of the budget.
Her lengthy address to Parliament promised significant relief for struggling households and major NHS investment, however opposition MPs were crying foul over broken tax pledges and what they’re calling “stealth taxes by the back door.”
The Big Spending Commitments
One headline grabber is undoubtedly the £150 average reduction in energy bills from April, achieved through cuts to green levies. For millions of families still reeling from the cost-of-living crisis, this represents tangible relief that Labour hopes will translate into political capital. Not however the £300 cut promised in last year’s manifesto, and the reduction must also be set against price rises.
Transport costs are getting attention too, with the government implementing its first rail fare freeze in three decades alongside a one-year prescription charge freeze. These moves target two areas where households feel the pinch most acutely – daily commuting and healthcare costs.
The NHS receives a massive £4.9 billion injection aimed at tackling waiting lists, supported by plans for 250 new Neighbourhood Health Centres. This represents Labour’s attempt to deliver on one of its core electoral promises while addressing the healthcare crisis that has dominated political discourse for years.
Perhaps most significantly, the budget abolishes the two-child benefit cap at a cost of around £3 billion. Labour backbencher Sarah Owen called this “the single best, most effective way to lift hundreds of thousands of children out of poverty,” though the Conservatives questioned both the timing and “fairness” of the change, saying that the working poor would pay for this change.
Tax Rises Despite Earlier Promises
Here’s where things get messy for Reeves. The Labour Manifesto explicitly promised in that in Government Labour wouldn’t raise national insurance, VAT, or income taxes rates. Yet last year’s saw businesses hit with a massive rise in NIC contributions raising some £24 billion and fast-forward to yesterday and the Chancellor announced a further freeze to income tax and NIC bands raising around £13 billion, making Labour’s pledge look rather fragile.
Property, savings, and dividend income tax rates are jumping by two percentage points. Remote gaming duty hits 40%, while betting duty climbs to 25%. These might sound like niche areas, but they add up to significant revenue – and represent a clear departure from Labour’s pre-election positioning.
Capital gains tax and inheritance tax are both getting reformed, with the government allowing 100% relief transfer between spouses on inheritance tax while restricting Employee Ownership Trust relief from 100% to 50%. The non-domicile regime is also getting an overhaul, part of what Treasury sources describe as “ensuring those with the broadest shoulders bear the greatest burden.”
The government is also ending cheap UK State Pension access for those living abroad and reforming the Motability car scheme – measures that will raise save £1 billion across five years but affect relatively small voter groups.
The Chancellor also announced a 3pence per mile charge for Electric Vehicles, a surge charge on properties worth £2million or more and extended the sugar tax to cover milkshakes.
The impact of all these measures also give the Chancellor additional fiscal head room, enough at least that she hopes will mean next year’s budget will be less about the need for tax rises to balance the book.
Opposition MPs Fire Back
Conservative leader Kemi Badenoch, launched a blistering attack saying this was “a Budget for Benefit Street paid for by working people.” Adding, “She and this Government have lost what little credibility they have left, and no one will ever trust her again.”
The Liberal Democrats described the raids as an “assault on the squeezed middle”.
Tory MP Robert Jenrick focused on the broader economic picture: “While the Chancellor talks about supporting working families, she’s simultaneously dragging more of them into higher tax brackets through frozen thresholds. This isn’t progressive taxation – it’s pickpocketing by stealth.”
The criticism isn’t limited to tax policy. Conservative MP Priti Patel highlighted what she called “the government’s chaotic approach to welfare reform,” pointing to the embarrassing U-turns on winter fuel allowances and disability benefit restrictions that preceded today’s announcements.
While Reform Leader Nigel Farage, said of the Chancellor: “She’s broken the manifesto in spirit, if not literally in letter. Everyone who works, taxes will go up, and if inflation keeps running at 4 per cent, 5 per cent, whatever it is, effectively their taxes are going to go up significantly over the course of the next few years.”
The Political Calculations
Labour’s strategy appears to be front-loading the political pain while delivering visible benefits closer to the next election. The energy bill reduction kicks in during spring – prime territory for demonstrating government competence ahead of crucial local elections.
However, this approach carries significant risks. The broken tax promises hand opposition parties a powerful weapon, while the complexity of the revenue-raising measures makes them difficult to defend in simple terms.
Liberal Democrat leader Ed Davey seized on this vulnerability: “The problem with this budget isn’t just what’s in it – it’s what it says about Labour’s approach to government. They’re governing by U-turn and hoping no one notices the contradictions.”
The NHS spending, while popular, also raises questions about long-term sustainability. Conservative health spokesperson Victoria Atkins warned: “Throwing money at the NHS without fundamental reform is like pouring water into a broken bucket. Where’s the plan for actual improvement?”
What This Means for Labour’s Trajectory
The political dynamics surrounding this budget reveal deeper tensions within Labour’s approach to government. The party entered office promising both fiscal responsibility and transformative change – two objectives that are proving increasingly difficult to reconcile.
The abolition of the two-child benefit cap, while hugely popular with Labour MP’s actually polls badly among ordinary voters, even those who voted Labour in the last election. Perhaps if there weren’t tax increases hitting those on low and fixed incomes this might have be easier to sell to the public, but its not. This creates a complex political narrative that opposition parties are already exploiting.
Westminster insiders suggest the budget reflects Labour’s recognition that it needs to deliver tangible benefits quickly, even if it means sacrificing some fiscal credibility. One senior Labour source, speaking anonymously, admitted: “We’d rather be accused of stretching tax promises than failing to help families struggling with bills.”
However, the opposition’s response suggests this calculation may prove costly. Conservative sources indicate they plan to make “broken promises” a central theme of their attacks on Labour’s economic competence.
The Liberal Democrats are taking a different approach, focusing on what they characterise as Labour’s “chaotic” policy-making process rather than opposing specific measures. This strategy allows them to appeal to voters who support the budget’s objectives while questioning the government’s methods.
The Road Ahead
This budget sets up several key political battlegrounds for the coming months. The energy bill reduction will be tested against actual household experiences, while the NHS investment will face scrutiny over delivery timescales and measurable outcomes.
More fundamentally, the budget represents a test of whether Labour can maintain public trust while navigating the complex trade-offs of modern government. The opposition’s unified criticism of broken tax promises suggests this will become a defining issue for Reeves and the broader Labour project.
For now, the government is betting that voters will prioritise tangible benefits over political consistency. Whether that calculation proves correct may well determine the trajectory of this Parliament and Labour’s chances of securing a second term.
The coming weeks will reveal whether Labour’s second budget represents shrewd political positioning or the beginning of a credibility crisis that could define the government’s entire term in office.
Labour’s Second Budget: What’s Inside and Why It’s Getting Heat from the Opposition
