Reeves Unveils Billions in Tax Hikes in Budget 2025 Amid Manifesto Backtrack
Nov, 26 2025
Chancellor Rachel Jane Reeves stood at the despatch box in the House of Commons at precisely 12:30pm GMT on Wednesday, November 26, 2025, and delivered a budget that redefined economic fairness in modern Britain. The speech, delivered after Prime Minister’s Questions in the Palace of Westminster, was less a financial plan and more a political reckoning — a moment where the Labour government’s manifesto promises collided with the cold arithmetic of a £28 billion fiscal gap. "This isn’t about punishment," Reeves said, "it’s about responsibility." But for millions of working families, the reality felt different.
The Manifesto That Didn’t Hold
Reeves had spent months insisting she wouldn’t raise income tax, VAT, or national insurance — a cornerstone pledge from Labour’s 2024 election campaign. Yet here she was, confirming the income tax threshold freeze would continue through 2029. That means, as wages rise with inflation, more people will be pulled into higher tax bands without a single vote changing. It’s a stealth tax, economists call it. The Independent’s political editor David Maddox was blunt: "She’s breaking her promise. And everyone knows it." The move isn’t new — it began under the Conservatives in 2010 — but it’s now the longest-running tax freeze in British history. By 2029, an estimated 3.2 million additional workers will pay higher rates simply because their pay increased. For a nurse earning £34,000 in Manchester, that’s an extra £310 a year. For a delivery driver in Birmingham, £280. No announcement. No debate. Just a slow, silent squeeze.The ISA Shock and the Two-Child Cap End
The most startling twist came in the Individual Savings Account (ISA) changes. The current £20,000 annual allowance, a lifeline for savers since 1999, is being slashed to £12,000. The Telegraph’s sources, citing Treasury insiders, confirmed the drop after weeks of speculation. "It’s not about discouraging saving," said PwC UK’s Head of Tax, Claire Blackburn, in a briefing released hours before the speech. "It’s about closing a loophole that benefits high earners who park wealth tax-free while public services crumble." Meanwhile, the two-child benefit cap — a deeply controversial policy introduced in 2017 — is being scrapped. Families with a third or fourth child will now receive full Child Benefit again. The cost? £1.9 billion annually. It’s a stark reversal. Labour campaigned on scrapping it. Now, they’re delivering. But critics argue it’s a political gesture, offset by tax hikes that hit the same working-class families.Wage Gains, But Not Enough
There was good news, too. The national minimum wage will rise to £12.71 for adults aged 21 and over, and £10.85 for those aged 18 to 20, effective April 2026. That’s a 4.3% increase — the largest since 2022. But inflation still hovers at 2.8%, and housing costs in London have jumped 17% since 2022. "It’s a raise," said Maria Lopez, a care worker in Sheffield. "But I still need two jobs to cover rent and my daughter’s school trip." The government insists this wage hike, paired with the benefit cap removal, shows its "fair choices" ethos. Yet PwC UK Chief Economist Barret Kupelian warned: "This isn’t a Budget of numbers. It’s a Budget of trade-offs. And the winners? Probably not the people who needed it most."
What Happens Now?
The detailed budget documents — 417 pages of economic forecasts, tax tables, and spending projections — were released by HM Treasury immediately after Reeves’ speech. Parliament will now enter a two-week debate, with opposition parties already lining up to challenge the ISA cuts and the tax threshold freeze. The House of Commons’ social media channels — @HouseofCommons on X, Facebook, and Instagram — are flooded with posts from constituents demanding clarity.Why This Matters Beyond the Numbers
This Budget isn’t just about tax rates or benefit caps. It’s about trust. Labour won on a promise of honesty. Now, they’ve chosen stability over symbolism. The public finances are in bad shape — no one denies that. But the way they’re being fixed is revealing. By freezing thresholds, they’re quietly raising taxes on the middle class. By cutting ISAs, they’re targeting the aspirational saver. By scrapping the two-child cap, they’re helping the poorest. It’s a juggling act. And the balls are heavy.Prime Minister Sir Keir Rodney Starmer said, "We’re not returning to austerity." But austerity isn’t just about cuts. It’s about who pays. And right now, the bill is being passed to the working families who never got a raise that kept pace with the cost of living.
Frequently Asked Questions
How will the ISA threshold cut affect ordinary savers?
The reduction from £20,000 to £12,000 means savers can now shelter £8,000 less per year from tax. A basic-rate taxpayer who maxed out their ISA would lose £1,600 in annual tax savings — £800 for a 20% taxpayer, £1,600 for a higher-rate taxpayer. For those saving for a home or retirement, this could delay goals by years. The change affects 14.7 million ISA holders, according to HMRC data.
Why freeze income tax thresholds instead of raising rates?
Freezing thresholds is politically easier than raising rates — it’s less visible. But it’s more regressive. As wages rise with inflation, more people get pushed into higher tax bands. Since 2010, this has raised £120 billion in extra revenue without a single vote. In 2025 alone, it’s expected to bring in £7.3 billion, making it the single largest revenue source in the Budget.
Who benefits most from scrapping the two-child benefit cap?
Families with three or more children on low incomes will gain an average of £1,200 per year. The policy change will directly benefit 520,000 households, mostly in the North of England and Wales, where child poverty rates remain highest. Critics argue it doesn’t address root causes like housing or childcare costs, but for many, it’s a lifeline — especially with childcare fees up 22% since 2020.
What’s the timeline for these changes to take effect?
The ISA threshold cut and tax threshold freeze take effect on April 6, 2026, the start of the new tax year. The minimum wage increase also begins on that date. The two-child benefit cap removal will be backdated to April 2025, meaning eligible families will receive a lump sum payment in January 2026 covering the past nine months.
How does this compare to previous budgets?
Unlike the 2010 austerity budget, which cut public services, this one raises revenue while protecting some welfare. But it mirrors the 2012 Osborne plan: stealth tax increases via threshold freezes, targeting middle earners. The scale is larger — £28 billion gap vs. £11 billion in 2010 — and the political cost is higher, as Labour is breaking a clear promise. The only precedent for this level of ISA reduction was in 1999, when the limit was £7,000.
What’s next for the economy after this Budget?
The Bank of England expects growth to dip to 0.9% in 2026, partly due to reduced consumer spending from higher taxes. Business investment may slow as corporate tax changes loom in 2027. But the government hopes the benefit cap removal and wage rise will sustain demand. The real test comes in 2027, when the next Budget must address pension tax relief and capital gains — the next big revenue gaps.