Breaking Down the Budget 2025
Here are the key points from the second Labour BudgetOn Weds 26th November, Chancellor of the Exchequer Rachel Reeves, delivered her second Budget. In a pre-statement address, she said, “I know that the cost of living is still bearing down on family finances, I know that people feel frustrated at the pace of change, or angry at the unfairness in our economy. I have to be honest that the damage done from austerity, a chaotic Brexit and the pandemic were worse than we thought.”What is the Budget?Each year the Chancellor makes a Budget statement to the MPs in the House of Commons, outlining their plans for the economy, including raising or lowering taxation and spending on education, health, police and other public services. What are the main takeaways from this year’s Budget? Unveiling her Budget, Reeves stated, “I said there would be no return to austerity, and I meant it. This Budget will maintain our investment in our economy and our National Health Service. I said I would cut the cost of living, and I meant it. This Budget will bring down inflation and provide immediate relief for families. I said that I would cut debt and borrowing, and I meant it.”In their election manifesto, Labour promised no rises to income tax, national insurance or VAT to keep taxes low for “working people”. To avoid implementing any, Reeves is instead freezing income tax and NI thresholds for an extra three years beyond 2028, which will pull more people into higher tax bands over time and raise £8bn. The tax rates on property, savings and dividends income will be increased by 2 percentage points.There will be increased taxes for the gambling industry; a new mileage-based tax on electric and plug-in hybrid vehicles; the sugary drinks tax will be extended to pre-packaged milkshakes and lattes from 2028; and there’ll be a freeze to fuel duty for five months after April, with staged increases introduced from September 2026. Rail fares for journeys in England will be frozen for the first time in 30 years.The legal minimum wage for over-21s will rise 4.1% in April, increasing from £12.21 to £12.71 per hour. This is alongside a rise in the rate for 18 to 20-year-olds, going up 8.5% from £10 to £10.85 per hour, with a plan to establish a single minimum wage rate for all adults. The state pension will rise by 4.8% from April, in line with average wages.Reeves has also promised to scrap the two-child benefit cap from April, a cut in energy bills from April, investment in NHS technology and neighbourhood health centres, and a 2.6% of GDP spend on defence.How will the Budget affect the housing market?Housing has been a key area for the Labour government, with Sir Keir Starmer pledging to build 1.5 million homes during the first five years in power, including an increase in the supply of affordable housing. Last year, Reeves announced a £5bn investment in housing, allocating £500 million in new funding for the Affordable Homes Programme and increasing the stamp duty on second homes and buy-to-let properties.The housing headlines from this Budget have been around taxation. A ‘mansion tax’ will be introduced on properties worth over £2 million from April 2028, where owners will have to pay a recurring annual charge – £2,500 for properties worth £2m – £2.5m and up to £7,500 for properties worth £5m or more – alongside council tax. This tax will affect those in London and the South East the most, as 68% of £2 million-plus property sales in England have happened in Greater London.The rate of income tax from property income will increase by two percentage points from April 2027. Some forecasters predict that the higher tax burden on landlords could mean higher rents for tenants.How will the Budget affect hospitality?The increase in employers’ National Insurance contributions to 15% and in the National Living Wage, delivered as part of the last Budget, has, along with the 20% rate of VAT and the decrease in business rates relief, has put a huge strain on the hospitality industry this year.We’ve been calling on the Government to provide urgent support to the sector with our #TaxedOut campaign, and in her latest Budget, Reeves has announced that she’ll be reducing business rates for 750,000 retail, hospitality and leisure properties. This reduction will be funded by increasing the taxes on premises worth more than £500,000, like the warehouses used by big online retailers.
