Chancellor hikes taxes by £26bn in long-awaited Budget
By Abigail Townsend
Date: Wednesday 26 Nov 2025
(Sharecast News) - Rachel Reeves upped taxes and scrapped the two-child welfare cap on Wednesday, as she unveiled her long-awaited and much-leaked Budget to Parliament - less than an hour after it was accidentally published by the government's fiscal watchdog.
The chancellor unveiled a package of tax-raising measures, many of which had been trailed in the Budget's long run-up, worth £26bn.
Last year's Budget raised taxes by £40bn.
One of the largest contributions will come from freezing income tax thresholds to 2031, a year longer than initially expected.
It means that by the end of the period, tax thresholds - which were first frozen by then Conservative chancellor Rishi Sunak in 2021 - will have been left unchanged for a decade.
Other tax hikes announced by Reeves included reformation of gaming and gambling taxation, a levy on properties worth than £2m, and a 2 percentage point increase in income tax on dividends, savings and property.
Reeves opened her speech by calling the early publication of the Office for Budget Responsibility's economic and fiscal outlook "deeply disappointing and a serious error on their part".
The outlook, normally published after the chancellor sits down, was accidently posted online late on Wednesday morning.
The OBR apologised. It said a link on its website had gone live too early, and that it would be investigating the "technical error".
Its outlook said Reeves would more than double her fiscal headroom, from £9.9bn to £22bn by the end of the current Parliament, £12bn more than was predicted in March. But it also slashed the economic growth forecast for 2026, to 1.4% from 1.9%.
As a result, the OBR now expects GDP to grow by 1.5% on average over the five-year forecast period, 0.3 percentage points slower than its previous outlook.
Reeves blamed the lower forecast on weak underlying productivity growth, which she called "the Tories' legacy".
According to the OBR, the government will have received £16bn less in tax receipts by 2030 because of low productivity.
However, Reeves insisted the government would beat that prediction, telling MPs: "We beat the forecast last year and we will beat them again."
National debt is expected to reach £2.6trn this year.
But Reeves insisted her fiscal rules would "get borrowing down while supporting investment", with a surplus of £3.9bn forecast by 2028/29.
Inflation was predicted to end the year at 3.5%, slightly higher than the 3.2% predicted in March.
The OBR also lifted its inflation forecast for 2026, to 2.5% from 2.1%, but maintained its 2% outlook for the following three years.
Tom Selby, director of public policy at AJ Bell, said: "The contents of the Budget being accidentally published by the OBR was perhaps a fitting end to the most leaked fiscal event in living memory.
"The good news for the beleaguered chancellor was that the economic situation painted by the OBR - the so-called financial black hole - is less horrific than many had feared.
"There is still significant pain to be felt by millions of households, however."
Joshua Mahony, chief market analyst at Scope Markets, said: "The decision to more than double the fiscal headroom provides greater confidence that the government won't be back in the same tight fiscal position next time around.
"This helped lower bond yields immediately after the OBR leak, although yields have since fluctuated. The pound has reacted largely positively...[and] both the FTSE 100 and FTSE 250 have moved higher through the announcement.
"Ultimately this has a feel of a 'sell the rumour, by the fact' event, with markets responding to a budget that doubles fiscal headroom and imposing measures that are perhaps less onerous than some had feared."
Rain Newton-Smith, chief executive of the Confederation of British Industry, said: "The government's growth mission is currently stalled. While the chancellor has succeeded in creating the fiscal headroom she needed, a scattergun approach to tax risks leaving the economy stuck in neutral."
The levy on homes worth £2m will come in from 2028, with the highest rate of around £7,500 per year imposed on homes valued at £5m or more.
Remote gaming duty was raised to 40% from 21%, and the online betting duty to 25% from 15%.
But there were no changes to in-person gambling. Bingo duty is also due to be abolished from next April.
As expected, ISAs will be overhauled from April 2027. Although the £20,000 tax-free cash ISA allowance will be maintained, £8,000 must be designated exclusively for investment purposes.
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