The Budget for benefits street: Reeves funds eye-watering welfare splurge with £30bn tax raid on hard-working Brits – putting one in four on higher rate – alongside new levies on property, pensions and cars

Rachel Reeves was torn to pieces over her ‘Budget for benefits street’ today after unleashing another immense tax assault on Britain.

In scenes of high farce at Westminster, an ashen faced Chancellor was left scrambling after her crucial package was leaked before she even had a chance to deliver it to MPs. 

And the situation deteriorated swiftly from there for Ms Reeves as the scale of her raid became clear. 

She is set to raise an extra £30billion a year by 2030-31 – including an eye-watering £12.7billion from extending the tax threshold freeze for another three years. 

Around a quarter of the working population will be paying higher or top rate tax by then, up from just 15 per cent when it was imposed in 2021. The burden is due to reach a new 300-year record high as a proportion of GDP. 

When she finally rose to speak, Ms Reeves told the House she was asking everyone to ‘contribute’, despite explicitly pledging just 12 months ago that the freeze would not be prolonged because it hurts ‘working people’.

But Kemi Badenoch shot back that it was a ‘Budget for benefits’, pointing to a huge splurge on handouts. ‘She has chosen to put up tax after tax after tax,’ the Tory leader said, mocking Ms Reeves for complaining she was the victim of sexism and ‘mansplaining’. 

The extraordinary leak came just minutes after Ms Reeves brandished her red box outside 11 Downing Street.

Images from the Commons appear to show the moment during PMQs that she was handed a phone by minister Torsten Bell, informing her of the development.

The Chancellor sought to throw the blame entirely on the watchdog saying it was ‘deeply disappointing and a serious error on their part’. One of her Labour predecessors, Hugh Dalton, quit in 1947 after details were published in an evening newspaper before his speech. 

The two-child benefit cap is set to be axed in a bid to placate mutinous Labour MPs, leaving around 18,000 large families in line to pocket an extra £14,000.

The OBR said 560,000 families will receive extra cash, costing around £3billion a year. 

Overall welfare spending is forecast to be £16billion higher by 2030-31 than the watchdog thought as recently as March. 

In a sop to hard-pressed households, fuel duty has been frozen for five months, although it will then rise in stages. 

Other measures laid out in the documents include:  

• So-called ‘salary sacrifice’ tax reliefs – such as for pension contributions – will be limited to £2,000 a year to raise £4.7billion.
• Increasing the tax rates on dividends, property and savings income by 2 percentage points, raising £2.1 billion;
• A new mileage-based charge for EVs and hybrids will be introduced from April 2028, raising £1.4billion;
• A tax on gambling will bring in £1.1 billion a year – although horse racing is exempted;
• A ‘mansion tax’ of up to £7,500 a year on properties worth over £2million, to raise £400million;
• The U-turns on benefits curbs and scrapping winter fuel allowance have cost £7billion;
• The annual limit on cash ISAs is being cut from £20,000 to £12,000, but will stay the same for those aged over 65;
• Labour’s plan for compulsory ID cards is expected to cost £1.8billion over the next three years.  

The OBR has apologised and launched an investigation into the blunder, which sparked turmoil in Westminster and on markets. 

It teed up a dramatic session in the Commons as Ms Reeves and Keir Starmer try to get back on an even keel. 

Just a year ago Ms Reeves vowed she would not be coming back for more taxes.

And Labour promised at the manifesto that there would be no increase to the burden on ‘working people’. 

The OBR document revealed the decision to freeze income tax thresholds for three years – longer than the two years expected – will drag 780,000 more people into paying the basic rate and 920,000 into the higher rate band.

That is compared to the original plan for the freeze to end in 2028. 

The new ‘mansion tax’ will see higher value properties revalued.

A ‘surcharge’ of £2,500 will be placed on those worth between £2million and £2.5million.

The highest band of £5million-plus will be hit with a £7,500 charge, which will be uprated by inflation every year. 

Fuel duty will be frozen for five months until September, but the government has told the OBR that from then the 5p relief introduced by Rishi Sunak in 2022 will be phased out.

From April 2027, fuel duty is due to be uprated annually by RPI.

Alarmingly, the Government said annual spending on welfare per year is forecast to rise from £333billion in 2025-26 to £389.4billion in 2029-30.

That is higher than the previous forecasts of £326.1billion in 2025-26 and £373.4billion in 2029-30, reflecting the bumper sums being added by Ms Reeves

Spending on health and disability benefits per year is now forecast to rise from £83.1billion in 2025-26 to £103.6billion in 2029-30.

That is up from the previous forecasts of £81.2billion in 2025-26 and £97.7billion in 2029-30.

The OBR has upgraded its growth forecast from 1 per cent to 1.5 per cent this year.

However, there were grim downgrades for every year after that.

The underlying productivity trend is seen far more negatively, with a 1 per cent a year improvement pencilled in for the medium term. That is 0.3 percentage points slower than the March estimate. 

‘The UK’s productivity performance has undershot our forecasts, despite several substantial downgrades since 2010, as a significant rebound from recent negative shocks has not materialised,’ the OBR said. 

The tax increases offset the productivity downgrades and spending boosts to leave £22billion of headroom for Ms Reeves’ main fiscal rule, of balancing the books by the end of the forecast period.  

The watchdog sees inflation staying significantly higher for longer than previously anticipated.

CPI is expected to average 3.5 per cent this year and and 2.5 per cent in 2026, 0.2 and 0.4 percentage points respectively above the March forecast. 

The level will not return to the Bank of England’s 2 per cent target until 2027, a year later than foreseen before. 

Ms Reeves said tax rates on property, savings and dividend income will rise by two percentage points.

She told the Commons: ‘Currently, a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no National Insurance is charged on property, dividend or savings income.

‘It’s not fair that the tax system treats different types of income so differently and so I will increase the basic and higher rate of tax on property, savings and dividend income by two percentage points, and the additional rate of tax on property and savings income by two percentage points.

‘Even after these reforms, 90 per cent of taxpayers will still pay no tax at all on their savings.’

Ms Badenoch cited the Channel 4 show Benefits Street, which focused on life on a street in Birmingham.

She said the package of measures were a ‘smorgasbord of misery’ from the Chancellor.

She said: ‘Today she has announced a new tax raid of £26 billion. They’re all cheering. 

‘Household income is down. Spending policies in this Budget increase borrowing in every year. 

‘That smorgasbord of misery we have heard from her can be summed up in one sentence. Labour are hiking taxes to pay for welfare. This is a Budget for Benefits Street, paid for by working people.

‘This Budget increases benefits for 560,000 families by an average of £5,000. They are hiking taxes on workers, pensioners and savers to pay for handouts to keep their backbenchers quiet.’

Mrs Badenoch was heckled by Labour backbencher Jonathan Brash (Hartlepool), who shouted the Government was ‘taking children out of poverty’.

The Tory leader continued: ‘They can chunter all they like. These are the same backbenchers who cheered last year when she taxed jobs and left more than 100,000 people without an income.’

Cabinet met this morning to formally sign off the plans, with the Pound and yields on gilts – the way the government borrows money – subdued. 

Sir Keir told them the Budget represented the ‘kind of country we want to live in’, adding that the ‘fight was between renewal or decline – and this government chose renewal’.

Ms Reeves told ministers that she had made the ‘fair and necessary choices to strengthen our foundations and drive down the cost of living’. 

There have been warnings that markets will hammer the Pound and drive up the cost of servicing the UK’s massive debt mountain unless the Chancellor shows she has a ‘credible’ plan.

Ms Reeves already has the grim distinction of having delivered the biggest tax-raising Budget on record – around £41billion. 

The £30billion scoring for this package would make it the fifth biggest on record. 

Ms Reeves looks on track to increase taxes by more in just 16 months than Gordon Brown managed during a decade in No11.

The OBR said the tax burden is now set to reach 38.3 per cent of GDP in 2030-31. 

That is the highest in more than 300 years of official records. 

The humiliating ditching of wider reforms to welfare and the reversal of winter fuel allowance cuts have contributed to a grim situation for Ms Reeves.

She has already blamed a bewildering array of factors from Brexit and Tory austerity to Donald Trump for her woes. The OBR watchdog is thought to have downgraded productivity forecasts after concluding they were overoptimistic.

But businesses have pointed to the huge Budget national insurance raid for crushing growth, and lashed out at the ‘fandango’ of weeks of confused briefing about the contents of the Budget. 

In a video released ahead of the Budget, the Chancellor tried to put a brave face on the country’s plight.

She said things were improving with ‘wages rising faster than inflation, hospital waiting lists coming down, and our economy growing faster and stronger than people expected’.

‘But I know there is more to do,’ she said. ‘I know that the cost of living is still bearing down on family finances, I know that people feel frustrated at the pace of change, or angry at the unfairness in our economy.

‘I have to be honest that the damage done from austerity, a chaotic Brexit and the pandemic were worse than we thought.

‘But I’m not going to duck those challenges, and nor will I accept that our past must define our future. It doesn’t have to.’

She described the Budget as being for ‘the British people’ and said the Government would work with them to ‘build a fairer, stronger and more secure Britain’.

The Chancellor insisted she will use her Budget to introduce measures to tackle the cost-of-living crisis, as the beleaguered Government hopes to keep backbench Labour MPs on side.

Ms Reeves has vowed to reduce the costs of Government debt and is expected to take steps to increase the buffer she has against future economic shocks to avoid having to keep coming back for more tax in future budgets.

‘Today I will take the fair and necessary choices to deliver on our promise of change,’ Ms Reeves said ahead of the Budget.

She added: ‘I will not return Britain back to austerity, nor will I lose control of public spending with reckless borrowing.

And I will push ahead with the biggest drive for growth in a generation.’

Cabinet minister Darren Jones admitted the tax threshold freeze is ‘practically’ a tax rise as he toured broadcast studios this morning.

Asked on Sky News whether people will ‘pay more income tax’, he replied: ‘Only if their pay goes above the threshold. If their pay doesn’t change, then it doesn’t change their situation.’

But pressed that inflation would inevitable increase wages in cash terms, he added: ‘If their pay goes above the threshold, then they pay more than when they were below the threshold.’

Asked by presenter Sophy Ridge whether that was a ‘yes’ to it being a tax rise, he said: ‘Practically, yes. If they earn more above the threshold than they did before.’

The benefit cap limits means-tested benefits such as universal credit and child tax credit payments to the first two children, costing affected families a typical £3,455 in lost benefits for each additional child.

Figures produced by the Department for Work and Pensions (DWP) show that 470,000 families are now affected by the policy.

About 59 per cent have at least one adult in work, leaving almost 200,000 in which no-one has a job.

Almost two-thirds (297,000) have three children, while a quarter (117,000) have four. A further 37,000 affected families have five children, while 18,260 are listed as having ‘six or more’.

Tory policy chief Neil O’Brien said those with six or more children were in line for a windfall worth more than £14,000 a year. 

He added: ‘Last year the Chancellor said lifting the cap was unaffordable but Labour MPs have worked out she can be pushed around.

‘It means you are going to see some families receiving very large sums from the taxpayer, while the Chancellor is saying it is necessary to raise taxes on everyone else. 

‘It blows a hole in her argument that she has no choice but to raise taxes because of Brexit or the Tories or the Battle of Hastings. In fact, it shows she is quite happy to raise taxes to spend billions more on benefits.’

Critics of the cap claim it has worsened child poverty, and scrapping it has become an article of faith for many Labour MPs. But the potential rise in benefits is so large that some could be left with little incentive to work.