Rachel Reeves will unveil her Budget on Wednesday, promising a £550 annual boost to state pensions for 13 million older Britons while simultaneously extending a tax threshold freeze that critics say will pull nine million people into higher tax brackets.
The Chancellor faces the challenge of filling a £20 billion hole in public finances while delivering on Labour's manifesto commitments. Her Budget will confirm the state pension rise through the triple lock mechanism and scrap the controversial two-child benefit cap at a cost of more than £3 billion.
But the widely expected extension of the income tax threshold freeze until 2030 has drawn fierce criticism. Liberal Democrat deputy leader Daisy Cooper accused both major parties of a "stealth tax stitch-up," calling it «rank hypocrisy» given Reeves' past criticism of the Conservatives for the same policy.
Pension boost and tax squeeze
The state pension will increase to just over £240 a week from April, based on the triple lock policy which guarantees rises by the highest of inflation, average earnings growth, or 2.5 percent. Wage growth of 4.7 percent in the year to July triggered the increase, delivering £120 more than an inflation-only rise would have provided.
The tax threshold freeze, in place since 2021, means more people will be dragged into paying income tax or moved into higher brackets as wages rise. Liberal Democrats analysis based on House of Commons Library figures suggests 1.3 million additional people will pay the 40 percent higher rate, on top of 7.7 million already affected by the Conservative freeze.
London and the South East face the heaviest impact, with nearly 2.6 million people in those regions expected to be hit over the eight-year freeze period.
Welfare measures and savings
Reeves will scrap the two-child limit on universal credit, a move expected to benefit tens of thousands of families in deprived areas. To offset the £3 billion cost, she plans to extend targeted case reviews that identify incorrect universal credit payments, aiming to save £1.2 billion by March 2031.
A Treasury source said: «We will never tolerate fraud, error or waste in the welfare system – every pound of taxpayers' money should be spent with the same care with which working people spend their own money.»
Conservative leader Kemi Badenoch has sought to portray Labour as presiding over a rising welfare bill. She said ahead of the Budget: «On Wednesday, Starmer and Reeves are going to increase your taxes to fund more welfare.»
Political backlash
Cooper said families are «fed up with being milked for their hard-earned cash» and described the threshold freeze as benefiting neither major party. «While the two big parties squabble, it's ordinary Brits who are left footing the bill,» she stated.
The Chancellor defended her approach, saying: «Whether it's our commitment to the triple lock or to rebuilding our NHS to cut waiting lists, we're supporting pensioners to give them the security in retirement they deserve. At the Budget this week I will set out how we will take the fair choices to deliver on the country's priorities to cut NHS waiting lists, cut national debt and cut the cost of living.»
Prime Minister Keir Starmer defended Reeves against criticism, highlighting that women in public life face significantly more abuse than men.
Additional revenue measures
Reeves is also considering a surcharge on high-value properties worth more than £2 million, which could raise up to £450 million. The Times reported that owners could defer the cost until they die or move house to avoid forcing sales.
Other potential measures include a pay-per-mile tax for electric vehicle drivers, limiting salary sacrifice pension contributions before national insurance applies, and granting mayors including Sadiq Khan powers to impose a tourist tax.
Reviews of disability benefits by Labour minister Stephen Timms and of young people not in employment by former cabinet minister Alan Milburn are expected later next year, with welfare reform likely to follow those recommendations.
Note: This article was created with Artificial Intelligence (AI).
