Budget 2025 live: IFS accuses Rachel Reeves of breaking tax manifesto promise in damning Budget verdict

Influential think tank the Institute for Fiscal Studies (IFS) said it believed Rachel Reeves had breached Labour’s tax manifesto.

Labour’s 2024 election manifesto said: “Labour will not increase taxes on workers, so we will not increase National Insurance, basic, higher or additional Income Tax rates or VAT.”

Kate Devlin, The Independent’s Whitehall editor, reports:

Rachel Reeves announced £150 worth of energy bill cuts in her Budget.

But IFS director Helen Miller said: “The government has said the measures it is introducing will save households £150 a year on their energy bills.

“While it has made some significant tax cuts on energy bills over the next few years, the long-term proposals are much less significant, with just £39 a year cut on bills from 2029-30.”

Kate Devlin, The Independent’s Whitehall editor, reports:

The highly respected think tank the Institute for Fiscal Studies (IFS) has accused Rachel Reeves of breaching Labour’s manifesto commitment to the Budget.

“National Insurance will increase. I would call this a breach of the manifesto” as a result of the income tax threshold freeze and other measures, IFS Director Helen Miller said in her opening remarks at a Budget briefing.

She also hit out at the three-year freezes in personal tax thresholds between 2028 and 2031, saying a “key feature of this measure is that no one knows how much it will raise or how big the effects will be on taxpayers. The structure of the tax system has been left to the vagaries of future inflation.”

Karl Matchett, business and money editor of The Independent, reports:

From a personal finance perspective, there were a few aspects of yesterday’s Budget that seemed more…contradictory to say the least.

Grants are available to buy some electric vehicles… but now you’ll pay more to drive them.

With Cash ISA limits being reduced, people who want to continue saving must use regular savings accounts instead… and will now be taxed more on interest too.

Incentivize people to start investing… but in return, tax them more.

The two percentage point dividend tax increase may be a bit under the radar compared to some of the bigger changes affecting pensions and frozen thresholds, but as well as being another obstacle to the behavior the government says it wants to encourage, it also hinders small business owners.

“Increasing taxes on dividends is a strange move for a government desperate to encourage more people to invest their money rather than stash it in cash,” said Dan Coatsworth, head of markets at AJ Bell.

“Dividends serve as a reward that compensates investors for the risk of putting their money into the market. Losing more of this reward to the taxman is extremely frustrating for the investor.”

After weeks of leaks and wild speculation, Rachel Reeves unveiled her second Budget in a speech to the House of Commons on Wednesday afternoon.

To use The Independent Budget calculator created by tax consultancy Blick Rothenberg to calculate what the announcements mean for you:

With inflation still high and the government announcing £26bn of new tax increases, including a freeze on personal tax thresholds, changes to salary sacrifice schemes, cash ISA allowances and dividends and a mansion tax for homes over £2m, households, savers and investors could all feel the impact.

Personal finance expert Gabriel Nussbaum will tell readers the details in a live question-answer session today at 13:00; will explain what each change means for your money, when it will take effect, and how you can plan ahead.

If you would like to ask a question, please post it here.

Kate Devlin, The Independent’s Whitehall Editor, reports:

Conservative MPs were pleased with the Conservative leader’s speech attacking the Budget.

Ms Badenoch’s position has been under pressure due to poor polling and poor performances in the House of Commons.

But his speech, in which he said the Budget was a “total humiliation” for the chancellor and called on him to resign, calmed the nerves in his own backbenchers.

Pollster and Conservative Party member Lord Hayward said: Independent: “Ironically, the budget may have been earmarked to save Rachel Reeves and Keir Starmer’s jobs, but it may have done more to save Kemi’s.”

The Independent’s political correspondent Millie Cooke reports:

The Chancellor refused to rule out coming back for further tax rises next year, telling BBC Radio 4’s Today programme: “I won’t be writing future budgets.”

He added: “There’s been a lot of speculation about this budget… I’m now determined to grow the economy so we have money for public services and reduce taxes.”

The Independent’s political correspondent Millie Cooke reports:

OBR chairman Richard Hughes said “none of the measures” in Rachel Reeves’ budget “will have a material impact” on growth.

“None of the measures in this budget, positive or negative, will have a material impact on our forecasts,” he said.

“Both taxes and spending have increased significantly in this Budget.

Asked about his comments, the chancellor told BBC Radio 4’s Today Program: “From what they say in the documents, none of them currently meet the threshold for a single policy to be scored. So they have failed to get the India trade deal, the EU trade deal, the US trade deal, the Planning and Infrastructure Bill which will get royal assent in December, pension reform, the entrepreneurship package that I have set out.”

“They said that none of them could individually exceed the 0.1 threshold. But I am confident that the growth policies we are pursuing will grow our economy.”

Economists say Rachel Reeves’ budget is unlikely to “benefit economic growth.”

Chantal Van Stipriaan, partner at tax firm Blick Rothenberg, said her overall assessment of yesterday’s Budget was chaos, adding that it would be remembered for “many years”.

“The stress caused by the leak throughout this period has been catastrophic and has caused extreme stress for employees, retirees and businesses,” he said.

“Freezing the thresholds for an extra three years, a classic hidden tax, will not only mean that middle-class families will pay more tax, but will also mean that many relatively low-income individuals will be brought into the tax net, including people who will have to file tax returns for the first time, such as pensioners.”

He added: “The budget is likely to lead to higher inflation and higher unemployment and is unlikely to benefit the country’s economic growth.”