Rachel Reeves has delivered her second budget; one without major surprises.

After weeks, if not months of pre-announcements and retractions, and even more speculation in the media, all of which created paralising uncertainty for businesses, the Chancellor of the Exchequer has finally delivered her second budget to Parliament. 

Billed as a budget for fair taxes, strong public services, and a stable economy, its aim, according to Rachel Reeves, is to grow the economy while cutting the cost of living, as well as public debt and borrowing, with no return to austerity.

Setting the scene for today's announcement, Reeves blames the actions of the past Government as well as various negative events (cost of living increase, COVID, invasion of Ukraine, and Brexit) for the parlous state of the economy, which she feels is starting to recover under her ministrations.

The Office for Budget Responsibilty forecasts the economy will grow by 1.5% in 2025, revised up from one per cent in its March forecast. GDP growth is then forecast to slow slightly to 1.4% in 2026, before returning to 1.5% in subsequent years. Average GDP growth across 2026 to 2029 is now expected to be 1.5%. The forecast is for inflation to have peaked in Q3 2025, and to fall progressively to the Bank of England’s two per cent target in Q1 2027.

The OBR expects total employment to increase from 34.2 million in 2025 to 35.4 million in 2030. It expects the unemployment rate to peak at five per cent in the first half of 2026, before falling to 4.1% by the end of the forecast period. 

Infrastructure and housing

Since the start of the Parliament, the Government has provided funding for new and improved infrastructure across the country, including £15.6 billion for city-region transport budgets to improve transport links for millions of people, the new Social and Affordable Homes Programme, backed by £39 billion over ten years, and committed to expanding the School Rebuilding Programme, providing almost £20 billion investment from 2025-26 to 2034-35.

The Government says it is committed to delivering “the most ambitious planning reforms in a generation, principally through the flagship Planning and Infrastructure Bill – which sets the foundations to unlock new housing and critical infrastructure delivery”.

Secondary legislation and guidance to support full implementation will follow including to make pre-application engagement for major infrastructure projects more targeted and proportionate. This is expected to reduce delivery timelines for major infrastructure projects by up to 12 months.

The Government is also taking a more strategic approach to manage the impact of development on the environment, with Environmental Delivery Plans aiming to “drive pro-growth interventions that provide better benefits for nature than the status quo”.

The Budget reaffirms the Government’s commitment to delivering 1.5 million homes in England this Parliament. Decisions on new town locations will be informed by Strategic Environmental Assessment, and announced in the spring. Each new town will have at least 10,000 homes.

To unlock more new homes across the country, the Government is devolving housing funds across Greater Manchester, Greater London, Liverpool City Region, the North East, South Yorkshire, West Midlands and West Yorkshire through the integrated settlement. In total, £1.3 billion of the new National Housing Delivery Fund will be devolved.

Transport

Pump prices are at their lowest levels since 2021, before Russia’s invasion of Ukraine led to soaring prices and the introduction of a temporary 5p cut in fuel duty. The government is extending the 5p fuel duty cut until the end of August 2026, with rates then gradually returning to March 2022 levels by March 2027. The planned increase in line with inflation for 2026-27 will also be cancelled.

Historically, motoring taxation has been structured around two elements: taxation on the usage of the vehicle (primarily via fuel duty) and taxation on the ownership of the vehicle (primarily via annual Vehicle Excise Duty or VED).

While it says it is committed to supporting the transition to EVs by making electric cars accessible for everyone, the Government sees the transition to EVs as also bringing challenges since all vehicles contribute to congestion and wear and tear on the roads.

The Government is introducing Electric Vehicle Excise Duty, a new mileage charge for electric and plug-in hybrid cars, which will come into effect from April 2028. Drivers will pay for their mileage alongside their existing VED. Other vehicle types, such as vans and HGVs will be out of scope of eVED when it is introduced. The tax paid by EV drivers will be around half the fuel duty rate paid by the average petrol/diesel driver, with a reduced rate for plug-in hybrid drivers.

The OBR estimates that by the end of 2031, there will be 440,000 fewer EVs on the road given the deterring effect of this pay-by-mile scheme. 

Minimum wages

From 1 April 2026, the National Living Wage will increase by 4.1% to £12.71 per hour. The National Minimum Wage for 18-20 year olds will rise by 8.5% to £10.85 per hour, and for 16-17 year olds and apprentices by six per cent to £8.00 per hour. The accommodation offset will increase by 4.1% to £11.10 per day.

Taxation

The Government is not increasing the headline rates of income tax, National Insurance Contributions or VAT. The income tax and NI exemption for employer-provided benefits will be extended to cover reimbursements for eye tests, home working equipment, and flu vaccinations.

Asking “everyone to contribute to support economic stability and protect the public services everyone uses”, from 6 April 2026, the Government is implementing previously announced reforms to taxes on wealth and assets.

Reeves announced that she would "increase the basic and higher rate of tax on property, savings and dividend income by 2 percentage points and the additional rate of tax on property and savings income by 2 percentage points."

As a result the rate of dividend tax will go up to 10.75% for the basic rate of tax and to 35.75% for the higher rates of tax, according to the OBR.

The Capital Gain Tax rate for Business Asset Disposal Relief and Investors’ Relief will increase to match the main lower rate at 18%. The Government will go ahead with its reform of the agricultural property relief and business property relief. 

The current CGT relief available on qualifying disposals to Employee Ownership Trusts allows business owners to sell their shares without paying any CGT, with around half of the relief going to the largest ten per cent of disposals. The Government is reducing the relief available on these disposals from 100% of the gain to 50%.

Any unused £1 million allowance for the 100% rate of agricultural property relief and business property relief will be transferable between spouses and civil partners, including if the first death was before 6 April 2026.

The Government will not be proceeding at this time with converging the two rates of Landfill Tax, as consulted on earlier this year. It will instead prevent the gap between the two rates of Landfill Tax getting any wider over the coming years.

The Government will also retain the tax exemption for backfilling quarries to ensure that housebuilders and the construction sector continue to have access to a low-cost alternative to landfill. 

The Government will increase the standard rate of Landfill Tax by RPI and the lower rate by the cash amount of the increase in the standard rate, maintaining the differential between the two rates in cash terms.

The Government will “make improvements” to the packaging Extended Producer Responsibility scheme, including appointing a Producer Responsibility Organisation and consulting on proposals to enhance transparency of local authorities’ use of fees. It will also consult on reforms to Packaging Waste Recycling Notes.

However, to incentivise businesses to use recycled instead of new plastic in packaging, the Government will increase the Plastic Packaging Tax rate for 2026-27 in line with CPI inflation. It will also consult in early 2026 on the introduction of mandatory certification for mechanically recycled plastic packaging for businesses to claim an exemption from Plastic Packaging Tax.

The Government will legislate to allow for a mass balance approach to be used to attribute chemically recycled plastic for the purposes of the Plastic Packaging Tax from 1 April 2027. The legislation will also remove pre-consumer waste as a source of recycled content from the same date.

From 1 April 2026, business rates bills in England will be updated to reflect changes in property values since the last revaluation in 2023. As a result of the revaluation, the small business multiplier will decrease from 49.9p in 2025-26 to 43.2p in 2026-27, and the standard multiplier will decrease from 55.5p to 48p.

The Government will also introduce new permanently lower retail, hospitality and leisure multipliers, to deliver the manifesto commitment to rebalance the business rates system and support the high street. The Government is introducing a 1p supplement to the relevant tax rate for ratepayers who do not receive Transitional Relief or the Supporting Small Business scheme to partially fund Transitional Relief. This will apply for one year from 1 April 2026.

The government will strengthen HM Revenue and Customs powers to tackle fraud within the Construction Industry Scheme, a tax deduction system under which contractors withhold money from a subcontractor's payments and pass it to HM Revenue and Customs as advance payments towards the subcontractor's tax and National Insurance bill. The Government is also announcing regulations, for technical consultation, aimed at simplifying and improving the administration of the scheme.

Training

In the Budget, the Government is “setting out the next steps to ensure that people and businesses across the country can seize the opportunities of the UK’s modern Industrial Strategy”. It will introduce new reforms to simplify the apprenticeship system and make it more efficient as short courses are introduced from April 2026, including removing the additional uplift to levy accounts; changing the expiry window to 12 months; changing the Government’s co-investment rate to 75% for levy-paying employers once they have exhausted all their funds; and working with employers to streamline the suite of apprenticeship standards available. More details on the wider Youth Guarantee and Growth and Skills Levy package will be announced shortly.