Chancellor Rachel Reeves has unveiled her second Budget, setting out the government’s tax and spending plans for the year ahead.
Chancellor Rachel Reeves has unveiled her second Budget, setting out the government’s tax and spending plans for the year ahead. While several measures were trailed in advance, others emerged early after the Office for Budget Responsibility (OBR) mistakenly published its official forecast.
Budget 2025: key points
Taxes and Personal Finances
- National Insurance and income tax thresholds will remain frozen for three extra years, until 2031, meaning more people will move into higher tax bands over time.
- The annual cash ISA allowance for under-65s is capped at £12,000, with the remainder of the £20,000 limit reserved for investment ISAs.
- Dividend tax rates will rise by two percentage points from April, while tax on savings income increases from April 2027.
- The cap restricting child-related benefits to two children will be scrapped from April, reversing a major welfare policy.
Wages and Pensions
- The National Living Wage for those aged 21 and over will rise 4.1% in April to £12.71 per hour.
- Wages for 18- to 20-year-olds will jump 8.5% to £10.85 per hour, part of a longer-term plan to unify adult pay rates.
- State pension payments will increase by 4.8% from April under the triple lock, exceeding current inflation levels.
- From 2029, salary sacrifice allowances for pension contributions will be capped at £2,000 a year.
- The Help to Save scheme for low-income savers will be extended beyond 2027.
Property and Local Taxes
- Homes in England valued above £2 million will face a new council tax surcharge of £2,500 to £7,500 after revaluation in higher bands.
- Tax on rental income will rise by 2 percentage points from April 2027.
- Regional mayors in England will be permitted to introduce local tourism levies on overnight stays in hotels and holiday lets.
Business, Transport and Environment
- The 5p cut on fuel duty for petrol and diesel is extended until September 2026, after which rates will gradually rise again.
- A new mileage-based road tax for electric and plug-in hybrid cars will begin in 2028.
- For the first time since 1996, regulated rail fares in England will be frozen next year.
- Premium vehicles will no longer be available through the Motability scheme.
Other Tax changes
- The exemption for small imported parcels worth under £135 will end in 2029.
- Online gambling firms will see their profits tax rate rise sharply, from 21% to 40%, though the 10% bingo duty will be scrapped.
- Sugary drink duties will expand to include milkshakes and lattes from 2028.
- Tobacco tax will rise by 2% above RPI inflation, while alcohol duty will also increase by the higher RPI rate in February.
- A £9.90 NHS prescription charge freeze remains in place for England through next year.
The OBR forecasts the UK economy will grow 1.5% in 2025, an upgrade from March’s 1% estimate, though average growth between 2026 and 2029 is expected to slow to 1.5%.
Inflation is predicted to fall from 3.5% this year to 2.5% in 2026, before hitting the Bank of England’s 2% target in 2027.
The Guardian have published a Budget 2025 calculator to find out if you are better or worse off. You can use their interactive tool to see how you have been affected by Rachel Reeves’s tax and spending announcements. Use the arrow keys to scroll sideways and enter your details.
