UK Budget: Higher Taxes To More Welfare — Five Key Takeaways

The Labour government’s latest budget has created a deep political rift, with Chancellor Rachel Reeves simultaneously introducing new welfare policies to alleviate poverty and being accused of a "total humiliation" by the opposition for effectively raising taxes on working people.

The central controversy stems from the extension of the income tax threshold freeze, which will push hundreds of thousands into higher tax brackets, even as the budget abolishes the widely despised two-child benefit cap and the controversial 'rape clause' exemption, as per reports.

Here are the five key takeaways from the budget announcement:

Despite Chancellor Reeves' promise not to raise income tax or National Insurance, the budget extends the freeze on income tax thresholds until 2031.

This "fiscal drag" will pull 7,80,000 new people into paying basic-rate income tax and hundreds of thousands more into higher bands. Critics, including Conservative leader Kemi Badenoch, described the move as a broken promise.

To balance this, the Chancellor announced a "mansion tax" on properties worth over £2 million, alongside a 2-percentage-point increase in tax rates on rental income, dividends, and capital gains.

A major element of the budget is the scrapping of the two-child benefit cap from April 2026. Experts, including those from the Resolution Foundation, praised this move as a critical step toward reducing child poverty, with one analyst noting its removal was vital for the Chancellor’s political standing.

Reeves announced the immediate scrapping of the so-called "rape clause," which required women to prove their child was conceived non-consensually to be exempted from the two-child benefit cap.

Describing the exemption requirement as "vile, grotesque, dehumanising, cruel," the Chancellor expressed pride in abolishing the measure.

The Office for Budget Responsibility revised its forecast, upgrading economic growth for the current year (to 1.5% from 1%) but downgrading projections for the subsequent four years (2026-2029) to approximately 1.4-1.5%.

The OBR also revised inflation down for the next year, following freezes on fuel duty and rail fares, despite revising the current year’s inflation forecast up to 3.5%.

Financial markets displayed a calm reaction to the budget announcement. The Pound (Sterling) rose slightly against the dollar before settling back, and London’s blue-chip FTSE index and the FTSE 250 index both posted modest gains of about 0.6%.