UK budget to target cost of living crisis as Reeves battles to keep Labour MPs on side | Budget 2025

Rachel Reeves will pledge to tackle Britain’s cost of living crisis and deliver financial stability in Wednesday’s budget, billed as a decisive moment for the fate of Keir Starmer’s beleaguered government.

The chancellor will say he has made “fair and necessary choices” to support the economy while collecting billions of pounds worth of taxes to offset lower-than-expected growth forecasts.

But he is struggling to keep the party on his side, amid unrest among Labor MPs over the government’s handling of the budget rollout – including concessions made as a result of its decision not to raise income tax rates.

The government has been rocked by a series of damaging leaks and speculation, instigated by many of its ministers as they seek to lay the groundwork to avoid spooking the markets and falling further in the polls.

Reeves is expected to announce a rise in the minimum wage, freeze rail fares for the first time in 30 years, cut green taxes on energy bills and remove two controversial child benefit caps to help improve living standards.

But after abandoning plans for income tax increases amid higher pay rises and speculation about Starmer’s future, Starmer has been forced to give up costly options such as introducing a series of smaller, riskier tax increases and reversing a 5p cut in fuel duty to fill the gap of at least £20bn.

In nearly a dozen measures, the chancellor will continue to freeze income tax thresholds for another two years first introduced by Rishi Sunak, limit pay sacrifice schemes, introduce a gambling tax, pay per kilometer for electric vehicles and introduce property tax on high-value homes.

Despite pre-budget leaks, it is still unclear where billions of pounds worth of tax increases will fall; This increases the likelihood of announcements unraveling in the days after the budget, which could further damage Labour’s standing with markets and the public.

In a statement to MPs, Reeves is expected to say: “I will hold fair and necessary elections to deliver on our promise of change. I will not return Britain to austerity or lose control of public spending by recklessly borrowing.”

“I will take action to help families with living costs… shorten hospital waiting lists… reduce the national debt. And continue the biggest growth drive in a generation.”

“Investment in roads, rail and energy. Investment in housing, security and defence. Investment in education, skills and training. So together we can build a fairer, stronger and safer Britain.”

Millions of low-paid workers will have their wages increased by 4.1% from April next year due to an increase in minimum wage rates, as part of the government’s aim to improve living standards.

The government said the “national living wage” for over-21s will rise to £12.71 from April, which will increase annual earnings for around 2.4 million workers by £900.

The minimum wage for 18 to 20-year-olds will rise by 8.5% to £10.85 per hour, narrowing the gap with older workers as part of the government’s pledge to “raise the floor” on wages for all workers.

Although he insists there will be no return to austerity, the Guardian understands the Chancellor is preparing to make steep ministerial cuts for the end of parliament, meaning areas such as local government, courts and border control could be hit.

Under current plans, department spending is expected to increase by an average of 1% in 2029-30. However, it is expected to reduce this estimate to just 0.5%; This is a level that will require heavy cuts in some unprotected areas.

The move would cut £2.8bn from spending plans that government officials say could be achieved through actions such as abolishing police and crime commissioners, ending accommodation in asylum hotels, cracking down on benefit fraud and sacking thousands of civil servants.

But economists warn that the savings will not be fulfilled and will likely be revised in coming years.

Ben Zaranko, deputy director of the Institute for Fiscal Studies, said: “If the Chancellor promises unspecified spending cuts for the back-end of parliament, this will certainly raise questions among investors about the credibility and deliverability of the budget in what could well be an election year.”

Stuart Hoddinott, deputy director of the Institute for Government, said: “If the government decides to cut spending in the final year of the forecast, it will have to make difficult decisions about how to allocate those cuts.

“But more likely this is a return to the last government’s approach: writing down fancy spending figures in the final year of the forecast to arrive at fiscal rules before finalizing them closer to the time.”

In other developments, Reeves is expected to continue scrapping hundreds of millions of pounds in tax breaks for the Motability scheme, which helps provide cars for disabled people, raising concerns among some Labor MPs.

The Treasury is reportedly considering scrapping up to £1bn of tax cuts but is likely to unveil a scaled-back version of the policy amid concerns among ministers that the wider plan could lead to the collapse of Motability.

Ministers are also expected to approve plans to encourage more drilling in the North Sea, including giving oil and gas companies incentives to drill in previously abandoned parts of the seabed.

The plans are likely to be controversial among green campaigners and Labor MPs as the party has pledged not to grant new licenses for North Sea oil and gas at the next election.