Budget 2024 live: Businesses hit as Rachel Reeves raises taxes by £40bn

He said it was a mistake to promise during the election not to put up income tax, NI, VAT or corporation tax.

“They’re the taxes which every sensible taxpayer knows sometimes go up, sometimes go down, according to the needs of the national economy as the chancellor sees it,” he said. “And had I been in office, I would have hoped not to be constrained by such a stupid and irresponsible promise.”

Rachel Reeves has said she accepts employees will bear some of the burden of increasing employers’ national insurance rates.

The chancellor told the News Agents podcast: “By choosing to levy the tax on employers, it’s then up to employers to find ways to absorb [that] however they can.”

She added: “The way I have structured it is that businesses pay that tax. I accept that some of that burden will be felt on employees, but if I had increased employee national insurance, or income tax, all of the burden would have been felt by working people.”

The chancellor has been criticised for an “effective cut” to overseas aid spending.

Kathleen Spencer Chapman, director of influencing and external affairs at Plan Internation UK, said: “This effective cut to overseas spending represents another dismal chapter in the story of UK aid. With each year that passes, more and more of the overseas aid budget is being diverted to a domestic asylum system that is not fit for purpose. Meanwhile, global humanitarian needs are reaching catastrophic levels and record numbers are suffering without enough to eat.”

She urged the government to refocus spending on areas such as tackling global poverty, the impacts of climate change and responding to humanitarian crises as well as to outline how they will return the UK aid budget to 0.7 per cent of gross national income.

The chancellor will be the “fund manager of the nation”, Nigel Farage has suggested.

The Reform UK leader told the Commons that he believes the country “absolutely” needs investment, but added: “This invest, invest, invest is going to be done by the chancellor on our behalf; [she’s] not just a top economist at the Bank of England, but she’s now going to be the fund manager of the nation, investing money and trying to pick winners.”

He added: “I do think picking winners is wrong.” Instead, he said it should be left to the free market.

The MP for Clacton also welcomed the money for potholes and the fuel duty freeze, but said the “big one” for him is the 1p a pint off draught beer which he said he had calculated will save him “over £1 a week”.

“So I’m particularly thrilled with that,” he said.

The country is “being trolled” by the government, Robert Jenrick has said.

In a post on X, the Tory leadership contender said: “They have increased the cost of capital but say they want investment. The have increased the cost of employing workers but say they want more jobs. They have said they want value for money but appointed the head of HS2 to run the new office of value for money.

“We are being trolled.”

Lord Clarke of Nottingham, the former chancellor, criticised the government for leaking budget policies to the media in advance of Rachel Reeves’s statement to parliament.

He told the House of Lords: “I was outraged by the complete circus of trailing in advance and trying things out that has gone on for three months while this budget was prepared. There were no surprises in today’s budget.”

When he was chancellor in the 1990s they “did not have leaks of any kind”, he insisted. The Tory peer argued that the government deliberately leaks policies to test them out with the public and Labour lobbies — and will even leak “nastier things” to lower the impact of the real policies.

The budget watchdog has put the previous government’s “black hole” in the government finances at £9.5 billion rather than Labour’s repeated claim of £22 billion.

The OBR has confirmed that the Tories “did not provide” them with all available information at the last budget. It uncovered £9.5 billion in spending pressures that it was not made aware of ahead of Jeremy Hunt’s fiscal statement in March and said its judgment on spending would have been “materially different” had it had access to this information.

Richard Hughes, the OBR chairman, told a briefing that he is an “economist not an astronomer” and “we don’t deal in black holes in the OBR”. Speaking to Sky News, he added that “nothing in our review was a legitimisation of that £22 billion”.

The budget alone will not be enough to “fix the foundations” for millions who struggle in “devastating hardship”, the Joseph Rowntree Foundation has warned.

Paul Kissack, the chief executive of the poverty charity, welcomed investment in social homes, help for carers and a rise in the minimum wage, but said it was “deeply worrying” that there were no changes to social security. Private renters will also feel let down by the choice to keep local housing allowance frozen and people receiving sickness benefits “face a fearful future”, he added.

“The government has failed to explain how they will save £3 billion from the benefits bill and will offer no certainty and more anxiety rather than the respect [people] deserve,” he said.

Boris Johnson has criticised the government for “lacking a vision for the future”.

The former prime minister said: “A high-tax, low-opportunity budget. Hitting employers for short-term gain shows a lack of vision for the future. Record-breaking tax levels when we should be focused on driving growth to channel investment and opportunities across the country.

“Labour have today broken their promises, they’ll do it again but we must keep our belief in Britain.”

Rachel Reeves has presented her first budget to the House of Commons, and while many of the announcements had been trailed, there were a couple of surprises in the mix. Here we look at the winners and losers from the chancellor’s statement.

• Read more: What does today’s budget mean for me? Use our tax calculator

Rachel Reeves was received with enthusiastic applause at a private meeting of Labour MPs after she delivered her budget.

Clapping and cheering could be heard from the corridor as she spoke at a meeting of the Parliamentary Labour Party. The chancellor told MPs that the government had “made our choices” and now needed to “make the case” for them and “take the fight to the Tories”.

The stability rule and investment rule should give markets and investors confidence to invest in Britain, the chancellor insisted.

Asked by Sky News about gilt yields rising and investors being worried, Rachel Reeves said she had not seen the latest market rules.

“The combination of our stability rule that we will pay for day-to-day spending through tax receipts and investment rule to ensure we can invest alongside business should give markets and investors confidence to invest in Britain,” she said.

The chancellor refused to commit to not making further tax rises.

Speaking to Sky News, Rachel Reeves refused to “make commitments to never change taxes again”, something she insisted would be “irresponsible”.

“This is a once-in-a-parliament budget to wipe the slate clean after the mess the Conservatives have left us,” she said.

The chancellor has defended the “biggest tax-and-spend budget in decades” not being in the Labour manifesto.

Asked by Sky News about not being honest with the public during the election campaign, Rachel Reeves said: “The public know the state that the economy was in and the state our public services were in and the damage the previous government did to our finances. The first commitment we made was to bring stability back to the economy. If I had swept this all under the carpet I would not have been able to bring that stability back to the economy.”

Pushed on the national insurance rise for employers being a broken manifesto pledge, Reeves cited not reversing the Tories’ cuts to employee NI which she “didn’t think was the right decision as that would’ve broken the manifesto pledge”.

The chancellor has “kicked the can down the road on Britain’s poverty challenge”, the Resolution Foundation warned.

Mike Brewer, interim chief executive at the think tank, said self-employed workers and small businesses will gain from the NI changes while firms employing lots of low or very high earners will be worse affected.

He said: “The chancellor has delivered a budget that engages with the seriousness of Britain’s economic challenges. But it is only the first step of what will be needed to secure strong public services, end stagnation and lift living standards for all. And while the chancellor has confronted Britain’s austerity challenge, she has kicked the can down the road on Britain’s equally pressing poverty challenge until next spring at the earliest.

“A failure to reverse damaging welfare cuts could see over 200,000 more children affected by the two-child limit.”

Kwasi Kwarteng recognised his mistakes as Liz Truss’s chancellor and acknowledged that Rachel Reeves was in a “difficult situation” before the budget was announced.

“I know how little room there is,” he wrote in the i. “Poor growth rates have condemned this country to higher taxation to pay for our public services. Conservatives, like myself, should be honest. The highest tax take since the 1940s occurred under the Conservative government in 2019 under Boris Johnson.

“Having won the leadership contest in 2022, the subsequent attempt by Liz Truss and me to reverse that trajectory was too dramatic and abrupt a shift. I can see that clearly now.”

Kwarteng also said that working people have been “protected” in the budget, but warned that it might not last if the government cannot secure significant growth.

Liz Truss accused the chancellor of “making Britain’s problems worse and accelerating the economic doom loop”.

The former prime minister said: “What we have seen from the last 25 years of economic consensus from both political parties and from organisations like the Bank of England and the Office for Budget Responsibility [is] a set of disastrous policies that has not worked for our country.”

The result of the budget will be “more companies closing down, more people with talent leaving the country and lower growth”, Truss said. This will mean “tax revenues won’t come in as expected and Labour will come back for more until this country runs out of money”, she added.

The National Farmers’ Union said this has been a “disastrous budget for family farmers”.

Tom Bradshaw, NFU president, said: “Before the election Keir Starmer promised to establish a new relationship with farming and the countryside. Well, he’s certainly done that.”

He said the budget makes producing food more expensive, the cost of which will “have to be passed up the supply chain or risk the resilience of our food production”. “It’s clear the government does not understand, or perhaps doesn’t care, that family farms are not only small farms, and that just because a farm is a valuable asset it doesn’t mean those who work it are wealthy.”

Liam Byrne, a former treasury minister, said Rachel Reeves’s budget “honours the approach to compassion, the intelligence and the judgment” of the last budget from the late Alistair Darling in 2010.

Byrne, who infamously wrote the “I’m afraid there is no money” note to his incoming counterpart when leaving office, also called for further increases to capital gains tax after he said the sale of supercars and mansions was at an all-time high, while the queues at food banks were still ever-long.

Darling served as chancellor for the Labour government from 2007 until 2010. He died last year aged 70.

The budget was a “recipe for higher rents”, the chief executive of the National Residential Landlords Association said.

Ben Beadle said: “Hiking stamp duty on homes to rent when 21 people are chasing every rental property makes no sense. Analysis by Capital Economics has found that increasing stamp duty on rental properties from 3 to 5 per cent will see a net loss of half a million homes to rent over ten years. This will not help the huge number of tenants for whom home ownership is still a distant dream.

“The chancellor has failed to heed the warnings of the Institute for Fiscal Studies that higher taxes on the rental market lead only to rents going up. What tenants needed was a budget to boost the supply of new, high-quality rental housing. What we got is a recipe for less choice and higher rents.”

A crossbench peer and businessman has warned that the employer NIC rise will be “a big dampener on the ability of businesses to grow”.

Karan Bilimoria, the founder of Cobra Beer, told Times Radio’s Andrew Neil: “Business was absolutely terrified about this budget. Well, the reality is £25 billion worth of employers’ national insurance increase. I mean, that is a huge, huge burden on business. And I think that’s going to be a big dampener on the ability of businesses to grow.”

He added: “This country used to be a magnet for inward investment, the second highest in the world. All this is not going to make us very friendly for investment at all.”

The budget received a mixed reaction from the unions.

Unison commended Rachel Reeves for “hitting the reset button”, while the TUC said the chancellor had “acted decisively to deliver an economy that works for working people”, and the GMB celebrated money for schools and hospitals.

But Sharon Graham, general secretary of Unite, reiterated her calls for a wealth tax.

She said: “The chancellor’s continued failure to ensure the super-rich pay their fair share is a misstep. The 50 richest families in Britain are worth £500 billion. A 1 per cent tax on the richest 1 per cent would create £25 billion. Black hole gone and vital money … to support and enhance the UK’s public services.”

Sir Ed Davey, leader of the Lib Dems, warned the budget may not offer people “a sense of hope, urgency and the promise of a fair deal”.

He told the Commons: “The Conservatives left behind an enormous mess in our NHS but I’m afraid it won’t be fixed unless the government fixes social care, too. The cost-of-living crisis won’t be solved by hitting families, pensioners, family farms and struggling small businesses, and our economy won’t grow strongly again unless we repair our broken relationship with Europe.”

Davey also said raising employers’ national insurance is “a tax on jobs and on people” and that the chancellor has chosen “unfair tax hikes that will hurt small businesses and medium-sized businesses, the engines of our economy”.

The idea that this budget does not increase taxes on workers is an “economic fantasy”, according to a free-market think tank.

Tom Clougherty, executive director at the Institute of Economic Affairs, said “heavier burdens on business and more borrowing for public-sector capital spending… does not inspire much confidence in [the government’s] approach”.

On the employer NICs rise, he said businesses would see their costs rise and it would be workers who pay the price “in the form of lower wages, reduced benefits and fewer job opportunities”. The freeze for the next few years on income tax and NI thresholds will mean “the effects of fiscal drag will continue to eat into our pay cheques for the next four years”, he added.

Clougherty warned that the government risks “getting stuck managing Britain’s relative decline, with no clear plan to break free of it”.

Paul Johnson, director of the Institute for Fiscal Studies, has reacted to the budget, saying working people will pay for higher taxes and warning that there could be further tax rises in a few years’ time.

Johnson said tax rises were “always a near-inevitability” and on the subject of the employer NICs rise he added that “somebody will pay for the higher taxes — largely working people”. He also warned that the rise will “further increase the incentive for employers to switch to contracting with the self-employed”.

Additionally, if spending pressures don’t dissipate after two years then Johnson suggested that Reeves might need another round of tax rises in a few years’ time “unless she gets lucky on growth”.

He added that whether the extra borrowing will be worthwhile hinges on how well the government spends the money. “The additional investment is extremely front-loaded, which doesn’t fill me with confidence on how efficiently it will be spent — if indeed it is spent in that timescale,” he said.

Robert Jenrick said Rachel Reeves’s budget “completes the biggest heist in modern history”.

The Tory leadership hopeful said: “Labour promised not to raise taxes, but this £40 billion tax hike amounts to a £1,400 bill for every household. The British public are right to be furious that they were brazenly lied to. No budget in recent memory has hiked the taxes of the British people more. Labour’s recipe of taxing, spending and borrowing more has caused the OBR to downgrade growth to amongst its lowest levels for decades.

“Forget boom and bust. Rachel Reeves will go down in history as the gloom and bust chancellor. Reeves and Starmer conned the public at the general election and working people are now paying for it with higher taxes and lower growth.”

Kemi Badenoch, the Tory leadership hopeful, said the budget is one of “higher taxes, more borrowing and lower growth”.

She said: “Labour had 14 years in opposition to think about what they should do with the economy and this is what we get: higher taxes, more borrowing and lower growth. We Conservatives cannot afford to make the same mistake.

“We need to return to principles and spend our time out of government building a plan that will rewire the state, bring down taxes and reward the risk-takers and the entrepreneurs who create jobs and fuel economic growth.”

By Mehreen Khan, Economics Editor

Labour’s ambitious fiscal plans — involving record tax rises and borrowing — could have severe unintended consequences for the economy, the Office for Budget Responsibility has warned in a stark assessment of the chancellor’s plans.

The fiscal watchdog, which was cast aside by Liz Truss but celebrated by Rachel Reeves, has pinpointed a number of pitfalls in the budget that could hurt growth and investment.

The OBR thinks average inflation will rise by 0.6 per cent next year as a result of higher government spending next year, keeping interest rates at least a quarter-point higher and hurting growth. Businesses will also pass on about three-quarters of their national insurance increase to workers’ wages, a factor that will end up limiting household spending after 2026.

Even more worryingly for Labour, the OBR doesn’t think Reeves’s ambitious investment plans will raise business investment, which remains unchanged over the coming years as the private sector gets “crowded out” by the state.

The chairwoman of the Treasury select committee welcomed the budget but criticised the government for “so much” of its contents being publicised beforehand.

Dame Meg Hillier told MPs: “I am disappointed that so much of this budget was revealed before today. This is not normal practice, and I hope going forward that the courtesy to this house and to the Treasury select committee means that constituents and MPs representing them will be the first to know about major issues, and that that will, from now onwards, be a hallmark of Treasury engagement.”

Policymakers could be slower to cut interest rates following the budget, economists have warned.

While Andrew Bailey, the governor of the Bank of England, has hinted that he wants to lower the cost of borrowing, the Bank’s forecasts have until now been based on the plans from the March Budget.

Economists at the research firm Pantheon Macroeconomics now believe that the new government’s fiscal easing has exceeded the Monetary Policy Committee’s (MPC) expectations. A higher national living wage and higher employers’ NICS is expected to boost labour costs and keep services’ CPI inflation in line with target rates.

As such, Pantheon Macroeconomics now expects the MPC will reduce the Bank Rate by 25 basis points every quarter until it hits 4 per cent by the end of 2025, more slowly than markets currently forecast. The researchers expect the MPC will vote to cut the base rate by 25 basis points at its next meeting in November to 4.75 per cent, but will hold it in December.

The sharp increase in spending is set to contribute to higher inflation in the short term, according to a member of the OBR.

In three or four years’ time, inflation should return to close to the 2 per cent target, David Miles said. “The inflation profile is a bit higher than it would have been if there hadn’t been quite a substantial increase in spending,” he said.

The scale of the increase in spending “probably pushes the economy, at least for the next couple of years, to the territory of demand running a bit ahead of supply capacity”, he added.

“This therefore causes inflation to be a bit higher for a couple of years; we then assume that the Bank of England responds to that so then three or four years down the road we are back to close to the Bank of England target of that 2 per cent level.”

Bond markets are whipsawing as traders digest the chancellor’s borrowing plans. After initially falling, yields on ten-year UK government bonds, also known as gilts, have risen above 4.4 per cent to their highest this year.

As recently as mid-November, the yield was around 3.75 per cent. Yields move inversely to bond prices. Rob Wood, chief UK economist at Pantheon Macroeconomics, said gilt yields were rising “as the scale of the extra spending in the near term has emerged”.

Others suggested that investors want more of a premium given the government is borrowing a lot more money but that is not reflected in the muted economic growth forecasts.

Shorter-dated bonds, which are more sensitive to interest rates, bore the brunt of the sell-off, with yields on two-year gilts jumping up to 4.36 per cent. The expectation is that, with government policies keeping inflation higher for longer, the Bank of England will not cut interest rates as quickly as some had thought.

Farmers across the country have been left distraught by the decision to hit their already struggling businesses with more taxes.

Gareth Wyn Jones, 56, whose family has farmed for more than 350 years in Llanfairfechan on the North Wales coast, said the majority of farms had combined assets of more than £1 million and often they are farmed between family members as partnerships.

Wyn Jones, who runs his farm in partnership with his father, said: “I would say almost every single farm is going to be affected by this. I am a bit shocked really, I thought they might do it for farms worth more than £10 million. It’s added stress and financial burden to an industry on its knees already. A lot of people are in massive debt and struggling to pay their mortgages. It’s just ludicrous. It’s another nail in the farming coffin.

“The government is talking about the environment, food security and small businesses, and this is going to hurt all that.”

Farmers have said Labour’s new 20 per cent inheritance tax on agricultural businesses will lead to the “death of the family farm”.

Olly Harrison, who owns 350 acres of land and a farmhouse in Merseyside, said: “The first £1 million is a house and about 40 acres, so all your people who have left London and bought a house with a pony paddock will be alright, but any real farm… it’s the death of the family farm.”

Harrison said his farmhouse, buildings, equipment and land is probably worth about £5 million, so on his death his family would owe £800,000 in taxes. “You wouldn’t mind if you were making lots of money but I don’t know any farms making money with 300 acres,” he added.

“I’ve got a mate who is the sixth generation on their farm and he said his kids won’t be able to afford to pay 20 per cent on death because they are not making any money. It’s just killed the rural economy.”

Thousands of family businesses and farms face paying inheritance tax for the first time in decades when their assets are passed from one generation to the next, the chancellor has said.

The longstanding business property and agriculture property reliefs are being scrapped from April next year for all but the smallest businesses and farms, and replaced by a 50 per cent rate of relief resulting in an effective tax rate of 20 per cent.

The reliefs existed to enable families to pass on business assets without the next generation being landed with a large tax bill that some may not be able to afford, risking the future of the otherwise viable enterprises. The chancellor said businesses and farms worth up to £1 million would continue to receive full relief, to “help protect” them.

However, Neil Davy, chief executive of the trade body Family Business UK, described the changes as “a betrayal of Britain’s hard-working family business owners and a failure by government to understand the importance of business property relief to the sector.”

Kevin Hollinrake, the shadow business secretary, said the “effective abolition” of the reliefs would “decimate private family businesses and farms”.

Shares in pub groups, betting companies and housebuilders all rose after the budget, which was broadly welcomed by stock market investors.

Pub owners were buoyed by a cut to alcohol duty on draught beer and cider and the chancellor’s promise to “permanently lower business rates multipliers” for high street leisure properties.

JD Wetherspoon shares climbed 3.5 per cent to 671p; Marston’s added 6.4 per cent to 42¼p; and Mitchells & Butlers rose 3.7 per cent to 270p.

Betting companies were boosted by the absence of a predicted tax on their profits. Shares in Entain, which owns Ladbrokes and Coral, rose by 7.3 per cent to 765¼p, while Evoke, the group behind William Hill and 888, rose 8.3p to 57¼p.

The government doubled down on its effort to “get Britain building”, including by hiring more planning officers and investing an extra £500 million in its affordable homes programme. That was a boon for developers.

Shares in Vistry, which now builds mostly social housing, jumped 3.2 per cent to 989p. Most of the other big builders also benefited, including Barratt Redrow, Britain’s biggest housebuilder, which advanced 3 per cent per cent, to 486¼p.

Railway passengers face above-inflation fare rises next year, it has been confirmed.

The price of many tickets will rise by 4.6 per cent on March 2, one percentage point above RPI inflation in July.

The rises relate to regulated rail fares which are set by the governments in Westminster, Edinburgh and Cardiff.

This covers about 45 per cent of fares including season tickets on most commuter routes, some off-peak returns on long-distance journeys, and anytime tickets around big cities.

The budget small print says the rise is the “lowest absolute increase in three years”, although it will be met by criticism. Rail passengers have been hit hard in recent years with a series of high fare increases.

The 5.9 per cent rise in fares last year was based on the UK’s average earnings growth during the quarter to July 2022. A figure of 4.9 per cent — not believed to be linked to any specific economic measure — was used for the increase this year.

A source said: “Labour’s first act of a nationalised railway is to increase fares.”

More than 40,000 pupils will miss out on a private school education because of Labour’s VAT raid on fees, the government has admitted.

Official estimates show almost 38,000 pupils will enter the state school sector after the policy takes effect in January, at a cost to the government of about £300 million.

The government’s response to a consultation estimates that in practice fees will increase by about 10 per cent, with the remaining 10 per cent absorbed by independent schools.

Around 3,000 pupils are expected to leave private schools because of the policy this academic year, it estimates.

The response also confirmed that the Ministry of Defence will increase funding for private school fees for military families, to take the VAT hike into account.

By Chris Smyth, Whitehall Editor

More than half of Rachel Reeves’s tax rises have gone straight to the NHS. The chancellor promised an extra £22.6 billion of day-to-day spending for the health service, plus a £3.1 billion increase in infrastructure funding.

Labour once promised no extra cash without NHS reform, but now Reeves boasts of “the largest real terms growth in day-to-day NHS spending outside of Covid since 2010” — an implicit acknowledgment that it is not of the same scale as Tony Blair’s cash injections.

This is a far bigger increase than most were expecting, and reflects the political reality that the NHS is second only to the economy among voter concerns.

But the small print matters: NHS England is already spending £14 billion more than the Treasury has allocated and is absorbing higher pay and medicines costs, meaning it is unclear how big the increase really is.

Reeves’s promised that the cash will let the government “move towards our target for waiting times to be no longer than 18 weeks”, a sign that the NHS has resisted putting a date on the commitment.

But the central political place of the NHS in this budget means that Labour now has nowhere to hide if patients’ experiences do not significantly improve.

Rachel Reeves announced a raft of tax rises — totalling £40 billion — and increases to spending and borrowing.

Some highlights were trailed in advance, but there were a few big surprises.

• Read in full: Budget 2024 key points: a summary of the highlights

Rachel Reeves’s bold budget — with record tax rises and borrowing outside emergency times such as war and Covid — will only deliver a “temporary boost to economic growth”, Richard Hughes, the head of the Office for Budget Responsibility, has said.

The fiscal watchdog has upgraded its GDP growth forecasts for the next two years, but downgraded them from 2026-28, meaning Labour will not hit its vaunted target to raise growth to the highest in the G7 over the course of this parliament.

The OBR said growth would be depressed by the rise in taxes announced today, which will hit household incomes, despite falling inflation and interest rates in years to come.

The growth forecasts are a major blow to the chancellor, who is banking on economic expansion to pay for increases to public spending on the NHS, social care, climate change and defence.

In his response, Rishi Sunak accused the government of “fiddling the figures” while raising tax to record levels.

He cited his warning before the election that Sir Keir Starmer would put up taxes and borrowing, adding: “Today his actions speak for themselves with a budget that contains broken promise after broken promise and reveals the simple truth that the prime minister and chancellor have not been straight with the British people.

“Time and again we Conservatives warned Labour would tax, borrow and spend far beyond what they were telling the country and time and again they denied they had such plans. But today the truth has come out. Proof they planned to do this all along.

“Today’s budget sees the fiscal ruled fiddled, borrowing increased by billions of pounds, inflation-busting handouts for the trade unions, Britain’s poorest pensioners squeezed, welfare spending out of control and a spree of tax rises they promised the working people of the this country they wouldn’t do.”

By Steven Swinford, Political Editor

On any measure this was a huge budget. After waiting 117 days Rachel Reeves adopted a shock and awe approach, announcing major tax rises while confirming tens of billions of pounds in additional spending on roads, rail and infrastructure.

At the heart of the budget was a political choice: Reeves’s pledge that there would be no return to austerity. The decision to invest in public services — particularly in the NHS — while balancing the books means that in cash terms this is the biggest tax-raising budget in history.

Taxes will rise by £40 billion, with employers’ national insurance, inheritance tax and capital gains tax all going up. Reeves argued this was a matter of necessity because of the fiscal inheritance, a “hole” in the public finances left by the Tories and £11.6 billion worth of unfunded compensation schemes.

It will inevitably lead to questions about the chancellor’s transparency and honesty, given that the manifesto pledged not to raise national insurance, income tax and VAT.

By Mehreen Khan, Economics Editor

Rachel Reeves has concluded her first budget by raising taxes by more than expected, raising borrowing more than expected, and imposing higher taxes on employers than forecast.

The government will borrow £40 billion in the 2024-25 fiscal year, higher than an estimate of around £20 billion expected before today. Reeves has freed up around £50 billion of fiscal headroom by shifting the government’s measure of national debt, and will only leave herself breathing space of £15.7 billion by the end of the parliament. Many analysts had expected this to be about double that figure.

But bondholders don’t seem too concerned. Gilts, which are government bonds, have rallied, reversing more than a week of selling. That will give Reeves and the cabinet some comfort that markets have given the green light to the government’s tricky balance between stabilising the public finances and juicing up growth through investment spending.

As Reeves ended her speech after well over an hour on her feet, the Office for Budget Responsibility published its forecasts based on her fiscal plans.

It confirms spending will increase by £70 billion a year, with about half from taxes, and that the tax burden will reach 38 per cent of GDP, be the highest on record.

The other half will be funded by borrowing which is £32 billion higher than forecast.

To cheers in the Commons, Reeves announced an extra £22.6 billion of day-to-day health budget and a £3.1 billion increase in capital budget, for this year and next.

This would help repairs and upgrades in hospitals and increase capacity in hospitals and diagnostic tests.

She said the investment plans would “repair the fabric of our nation” after progress went backwards under the Conservative Party.

Rachel Reeves has said she will provide £6.7 billion of capital investment in education next year, an increase of 19 per cent on this year.

This included £1.4 billion to rebuild schools with dangerous Raac concrete and £2.1 billion for maintenance.

The right to buy discount will be reduced and local authorities will be allowed to keep more money from sales, Reeves said.

She promised £5 billion for housing next year as part of plans to build 1.5 million homes over course of the parliament.

She said she would increase the affordable homes programme to deliver thousands of new homes with Liverpool and Cambridge the main beneficiaries.

Rachel Reeves said she will invest more in public services, confirming a new investment rule of borrowing to spend on capital projects.

She said the new rule will mean “counting not just the liabilities but the financial assets too” of investing in public infrastructure.

She said: “To rebuild our country we need to increase investment. By restoring economic stability and establish national wealth fund we have begun to create the conditions businesses need to invest.”

She said National Wealth Fund will be in charge of overseeing large scale public investments.

By Aubrey Allegretti

Income tax thresholds will not be frozen beyond the Conservatives’ plans, Reeves has confirmed.

As chancellor, Rishi Sunak froze income tax thresholds until 2028-29. Reeves today announced they will rise in line with inflation beyond that point.

“Fiscal drag” is a helpful revenue raiser for the Treasury, given it is not a direct tax increase, but still raises money because income tax thresholds do not rise with price rises.

It appears to be one of Reeves’s bigger “rabbits out of the hat” — though in practice is actually confirmation that an effective tax rise will not be prolonged.

The decision also means that the thresholds will rise just before the likely point of the next general election, and means Reeves can argue she has put an end to what critics call a “stealth tax”.

Rachel Reeves said she will scrap the “effective immunity” for low-value shoplifting, which she claimed the party opposite brought in.

She said she would provide additional funding to crack down on the organised gangs who target retailers.

Moving on to the giveaways, Reeves has announced more money for education.

The chancellor said she would be tripling investment in breakfast clubs. She also pledged a £2.3 billion increase in core schools budgets from next year and £300 million for further education.

She also confirmed the expected increase for defence.

Reeves announced a rise in stamp duty of 2 percentage points for people who buy second homes.

The rate will rise from 3 per cent to 5 per cent from tomorrow, she said.

The non-dom tax regime will be abolished in April, Reeves said.

She also confirmed that private school fees would be subject to VAT from January.

Reeves announced a cut in alcohol duty, saying it “means a penny off pints at the pub”.

She also announced an increase in tax on hand-rolled tobacco by 10 per cent, an increase in the soft drinks levy and a flat rate on all vaping liquid from October 2026.

By Mehreen Khan, Economics Editor

The chancellor has unveiled a much larger increase on employers’ national insurance contributions, a measure that will raise more than half the £40 billion in tax rises in this budget.

The rate of NI paid by employers will rise to 15 per cent, up by 1.25 percentage points from April next year. This is expected to raise £25 billion and goes much further than speculation that Labour would only scrap NI tax relief on employers’ pension contributions.

The chancellor has been forced into a much bigger tax rise on businesses after promising not to raise levies on “working people” through income tax, VAT or the rate of NI. These taxes make up more than two thirds of the state’s entire tax take. The employers’ NI hike also wipes out the £20 billion cuts in employee NI delivered by her predecessor, Jeremy Hunt, in the last two budgets.

Rachel Reeves has announced an increase in air passenger duty of £2 per passenger on an economy short haul flight.

And with a dig at Rishi Sunak, who she joked would soon be going to California, she said those flying on private jets will face an increase of 50 per cent. She said this would mean a bill of around £450 per passenger on a private jet.

Inherited pensions will be included in inheritance tax for the first time from 2027, Rachel Reeves has announced.

Capital Gains tax will be increased from 10 per cent to 18 per cent in the lower bracket and 20 to 24 per cent in the higher bracket.

Reeves said this would raise £2.5 billion and that the UK still had one of the lowest rates of CGT of any country.

Rachel Reeves is betting the house on growth and promised “economic growth will be our mission for the duration of this Parliament”.

The chancellor said this marked the end of “short-termism”, but the problem is the longer term estimates have worsened. Figures from the OBR forecast that real GDP growth will be 1.1 per cent in 2024, 2.0 per cent in 2025, 1.8 per cent in 2026, 1.5 per cent in 2027, 1.5 per cent in 2028, and 1.6 per cent in 2029. From 2026 this is a downgrade from the figures presented in March.

Reeves would argue this is because when the last forecasts were given, they did not take into account the scale of the financial black hole that she says the Tories left behind.

The chancellor is insistent that her plans will have the effect of “boosting long-term growth in every Budget”, and Labour’s most important – and difficult – pledge has been to secure the highest sustained growth in the G7 will be met.

But today’s new figures show the dangers of placing so much political capital on the issue, which can be so easily derailed by unforeseen circumstances.

Fuel duty will not be increased next year, Rachel Reeves has said, maintaining a long tradition of chancellors freezing the duty.

“There will not be higher taxes at the petrol pumps next year,” she said.

Rachel Reeves has confirmed an expected rise in employers’ national insurance, which she said would raise £25 billion.

The rate will rise by 1.25 percentage points and the threshold will be cut from £9,100 to £5,000.

Reeves announced plans to help with the cost of living, confirming a rise to the national living wage.

She said she would accept the low pay commission recommendations to increase the living wage by 6.7 per cent to more than £12 an hour.

She added there she would introduce single adult rate for people over 18. She said the national carer allowance would also be increased.

“A Labour policy to protect working people delivered by a Labour government again,” she said.

Rachel Reeves has announced a crackdown on fraud which she said was “often the work of criminal gangs”.

She said a new white paper will unveil plans to get more people into work and reduce the benefits bill.

A more modern HM Revenue & Customs, she said, will mean the government can clamp down on tax evasion, tax debt and “reduce the tax gap”. She said this would raise more than £6 billion by the end of the parliament.

The chancellor has unveiled disappointing growth and inflation figures, with prices on course to remain high in the coming years and growth downgrades from 2026.

According to the Office for Budget Responsibility, inflation will remain above the UK’s 2 per cent target until 2029, with average price rises on course to grow from 2.5 per cent this year to 2.6 per cent next year.

Growth forecasts have also been lowered from 2 per cent to 1.8 per cent in 2026, and lower at 1.5 per cent in 2027 and 2028.

Reeves has also imposed a more stringent fiscal rule on her government, promising to close the budget deficit over the course of three years rather than five.

Reeves has confirmed a change in her fiscal rules to allow more borrowing for capital spending.

She said the government will not borrow to fund day-to-to spending. She set each government department a 2 per cent productivity, efficiency and savings target next year, by using technology to be more efficient and joining up departments.

“We cannot undo 14 years of damage in one budget”, she said. “Economic growth is our mission for duration of the parliament.”

By Chris Smyth, Whitehall Editor

Rachel Reeves began her budget with a long attack on the Tory record, and her key weapon was an analysis by the Office for Budget Responsibility. This, she said, showed that the previous government “did not provide the OBR with all the information” and that their forecasts would have been “materially different” if they had done so.

While the controversial analysis has not been published and has provoked Conservative fury, Reeves’s attacks on Tory spending decisions as “the height of irresponsiblity” are essential to her argument that there was no alternative to £40 billion of tax rises.

Economists will point out that both parties’ pre-election spending plans were implausible, but the more important judgment is political. Will voters buy the Tory riposte that raising taxes is simply what Labour do? Or, as George Osborne did so successfully in 2010, will Reeves persuade the public that the last lot were to blame for the pain she is about to announce?

Rachel Reeves said the government will provide billions of pounds for “specific funding” to those impacted by the infected blood scandal and the Post Office Horizon scandal.

She had Rishi Sunak apologised when prime minister but did not allocate the money.

The government will set aside £11.8 billion to compensate those affected by the infected blood scandal and £1.8 billion to compensate victims of the Post Office Horizon scandal.

The budget raises taxes by £40 billion, the chancellor has said.

She said she is aiming to restore stability to the public finances and rebuild public services. She added she was committed to the 2 per cent target for inflation.

Reeves said Labour will publish a line-by-line breakdown of the £22 billion “black hole” it claims it inherited.

“The previous government hid the reality of their public spending plans,” Reeves said.
She quoted from an Office for Budget Responsibility document, which said: “The previous government did not provide the OBR with all the information to them.”

She added that the document said their forecast would have been “materially different” if they had known fuller plans

She also criticised the previous Tory government saying: “The party opposite failed our country their austerity broke our NHS their Brexit deal harmed British business , their mini-budget left families paying the price with higher mortgages the British people have inherited their failure.”

Rachel Reeves is on her feet, officially becoming the first ever woman to deliver a budget.

Opening her remarks she said: “On July 4 the country voted for change This government was given a mandate to restore stability to our economy and begin a decade of national renewal, fix the foundations and deliver change.

“That is our task and I know we can achieve it. My belief in Britain is strong than ever.

“More pounds in people’s pocket and NHS is there when you need it and economy that is growing. The only way to drive economic growth is to invest, invest, invest.”

Before Rachel Reeves began her budget speech, the deputy speaker took the chair and gave Labour a rap on the knuckles for leaking the key measures.

Nusrat Ghani said: “Premature disclosure of the contents of the budget has been regarded as an extreme discourtesy to this house and all of its democratically elected MPs.

“I am disappointed by comments of government spokespeople believing they can use precedence as an excuse.”

The Commons Speaker Sir Lindsay Hoyle has paid tribute to Rishi Sunak, the outgoing opposition leader, at his final appearance at prime minister’s questions.

Sir Keir Starmer also wished him well, saying: “The first British Asian prime minister is a reminder that people from every background can fill their dreams. I want to thank him for his hard work commitment and decency in everything he has done.

“I too wish him and his family the best in whatever the future may hold for him.”

Sunak said he planned to spend more time in his Yorkshire constituency, confirming he would not be standing down as an MP.

The judgment of the bond markets will be delivered within hours of Rachel Reeves’s maiden budget as investors make snap trading decisions based on Labour’s tax and spending plans.

So far this morning traders have been buying up UK government bonds, known as gilts, after they endured their worst week in six months in the run up to the budget. The yield on ten-year gilts, which moves inversely to the price, was down by 8 basis points to 4.22 per cent this morning, and it fell by 6 basis points on two-year gilts.

Traders have also been selling the pound on Wednesday, pushing sterling down by 0.3 per cent against the US dollar to $1.298 and 0.2 per cent weaker against the euro.

The decline is partly a reflection of the strong dollar, which has been rising ahead of Tuesday’s presidential election and the expectation of another interest rate cut from the Bank of England next week, which also weakens the pound relative to other currencies.

George Lagarias, chief economist at the audit and consultancy firm Forvis Mazars, said the chancellor will be wishing for “a non-market event” after she “communicated her intentions well in advance”.

“A spike in UK yields, despite the early information campaign, could mean that markets are becoming wary of Britain’s fiscal position,” he said.

Rachel Reeves has appeared outside No 11 holding the famous red box on the day she becomes the first woman chancellor to deliver a budget.

Reeves, wearing a dark grey suit and burgundy blouse, posed for photographs by herself and with her team of junior ministers in the Treasury.

The budget day photoshoot is a ritual for chancellors. In 2010, George Osborne held the red box that was used by William Gladstone in the 1860s.

In modern politics it is very rare for all the measures of the budget to be revealed when the chancellor speaks at the dispatch box.

Over the past few weeks Rachel Reeves and the Treasury have already announced several measures.

These include a rise in the cap on bus fares in England from £2 to £3 from next year, an end to the winter fuel payments paid to more than 10 million pensioners, a rise in the state pension of 4 per cent from April, and adding VAT to private school fees.

Several other changes have also been trailed in the media including freezing income tax thresholds, raising capital gains tax and increasing employers’ national insurance contributions.

This is to prepare both the markets and businesses for changes but also get bad news out early so attention is focused on any surprise measures that may be announced.

• Read in full: Budget 2024 predictions: what could Rachel Reeves announce?

BlackRock, the world’s largest fund manager, has gone against the grain and bought more UK government bonds over the past couple of weeks, reflecting its belief that another “mini-budget disaster” is unlikely.

Other investors have been selling UK gilts which has pushed up the yield on ten-year gilts to 4.25 per cent, up from 3.75 per cent in mid-September. Yields move inversely to bond prices.

BlackRock said the sell-off has been brought on by “jitters ahead of the UK budget announcement”, with the chancellor expected to confirm plans to change the rules to allow tens of billions of pounds more borrowing.

However, it thinks the markets’ worries are “overblown” and so, coupled with its belief that the Bank of England will cut interest rates more quickly than the US Federal Reserve, it expects bond prices to recover. “Markets are pricing in some chance of a repeat of the 2022 mini-budget disaster — an outcome we see as unlikely,” Wei Li, the firm’s global chief investment strategist, said.

Rachel Reeves is expected to unveil tax measures totalling £35 billion today, which will make it the biggest tax-raising budget since March 1993 when Norman Lamont outlined measures designed to raise £38.5 billion over a number of years.

Lamont’s package of tax increases and spending cuts was designed to address the public finances after the early 1990s recession. VAT on domestic energy bills was phased in, starting at 8 per cent in April 1994 and rising to 17.5 per cent in April 1995.

Income tax rates were adjusted, the stamp duty threshold was raised, and mortgage relief was reduced to 20 per cent.

It was one of two 1993 budgets, both of which were unpopular with the public.

Today’s budget is a “huge day for Britain”, the prime minister has said, striking an optimistic tone in which he said there is a “brighter future ahead”.

Sir Keir Starmer said on X: “After 14 years of decline, we will invest in our country — rebuilding our schools, hospitals and roads. We won’t shy away from the tough decisions to grow our economy and protect working people’s payslips. There is a brighter future ahead.”

Earlier Rachel Reeves, the chancellor, said on social media: “Politics is about choices. This Labour government chooses investment over decline.”

As reporters stood in Downing Street on Wednesday morning they were joined by a regular face who has seen many chancellors come and go over the years: Larry the cat.

The chief mouser to the cabinet office, then aged four, was adopted from Battersea Dogs and Cats Home in 2011 by the then prime minister David Cameron.

Rachel Reeves’s budget will be the 18th that Larry has witnessed since arriving in Downing Street. He has also seen eight chancellors and six prime ministers.

After Sir Keir Starmer took office in July he announced that his family would be welcoming a new Siberian kitten called Prince. The Starmers also brought JoJo with them from their home in north London. It is not yet clear how Larry, now 17, is getting on with the two younger cats.

Rachel Reeves is set to announce that a million low-paid workers will get a pay rise of more than 6 per cent next year.

Business leaders have warned it employers will suffer, especially when combined with tax rises in the budget and planned reforms of workers’ rights.

Cabinet ministers have been arriving in Downing Street for a briefing before the first Labour budget in almost 15 years.

Rachel Reeves, the first female chancellor, will lay out the big measures in her budget and how they will affect each department.

At about 11am, she will step out of No 11 and pose for photographers holding the famous red box, originally intended to carry the statement from Downing Street to the House of Commons.

At midday Reeves will sit next to Sir Keir Starmer at prime minister’s questions — Rishi Sunak’s last as Conservative leader — before getting to her feet at about 12.30pm. Immediately after her speech Sunak will deliver the response for the opposition.

The Office for Budget Responsibility, the independent watchdog, will give its assessment of the fiscal measures at 2.30pm.

Rachel Reeves should pledge to build new rail infrastructure in the north and “get serious” about the housing crisis, the mayor of Greater Manchester has said.

Speaking to BBC Breakfast, Andy Burnham said: “We would like to see new rail infrastructure in the north and we’ve made that argument many times.

“Beyond that we need to get serious about the housing crisis and start building council homes across the country. Actually that would be a big investment in the country’s future.”

He also backed the chancellor’s decision to raise the cap on bus fares from £2 to £3 next year: “Buses outside of London and Greater Manchester are in a different position, they are deregulated and it’s quite expensive to subsidise fares in that system.”

Clive Black, the veteran City retail analyst, has criticised Rachel Reeves for what he calls “the most prolonged car crash of a pre-announcement runway”.

He said that the “speculation and leaking to date” has had a “demonstrably damaging impact”, pointing to slipping confidence among businesses and consumers.

Black said: “Whilst one has to hope for the best, the period of the UK government since July 4 has, by common decree of normal folks, been a car crash — a rather depressing one at that given the incapability and incompetence of the Tories.”

He called out the “self-perpetuating civil service” and the public sector, where productivity is “in freefall”. “The rest of the economy is going to have to go some to pick up the slack,” he said.

Britain’s blue-chip shares fell at the opening bell to their lowest in almost three months, with investors taking some of their money off the table.

The FTSE 100, the Premier League of the London stock market, dipped 41.07 points, or 0.5 per cent, at the start of trading on Wednesday to 8,178.54.

Among the biggest fallers were a number of so-called dollar earners — companies which make most of their money overseas — as the pound edged back above $1.30. Shares in Anglo American slipped 3.4 per cent in early dealings, while the pharmaceuticals company GSK and the drinks giant Diageo both fell about 2 per cent.

The index has retreated almost 3 per cent over the past two weeks with investors wary that the chancellor may use the budget to increase capital gains tax on sales of shares.

On the bond markets, the yield on a ten-year UK gilt has crept up to 4.312 per cent, reflecting anxiety about an expected increase in government borrowing. In mid-September, the yield was about 3.75 per cent.

Chris Philp said it was “nonsense” to blame the previous government for the economic outlook.

The shadow Commons leader said that claims by Rachel Reeves that the Conservatives had left a “financial black hole” of at least £22 billion had been “comprehensively debunked”.

Philp told Sky News: “I mean, about half of it relates to inflation-busting pay rises for public sector workers with no performance improvements in return, which this current Labour government chose to give. So they can hardly blame the last Conservative administration for their choices.”

The government will go “over and above” the tax rises outlined during the election in today’s budget, the shadow leader of the Commons said.

Chris Philp said it was “very likely, near certain” that there are going to be “enormous tax increases coming, despite the fact they told the public in the election campaign that wouldn’t happen”.

He told Sky News: “So I think they lied to the British public in order to get elected. And now we’re seeing their true colors. Now we’re seeing what their plans really are.”

It was put to Philp that he could not accuse Labour of lying when the budget had not yet been delivered.

He said: “Well, they’re trailed it extensively, so I think we’ve got a pretty good idea.”

To the annoyance of the Commons speaker, Sir Lindsay Hoyle, much of the content of Reeves’s first budget is already in the public domain.

From tax thresholds to borrowing rules, what do we know so far about what is expected to be in the budget, and what is missing?

• Read in full: Budget 2024 predictions: what could Rachel Reeves announce?

The public will give the government time to get the nation’s finances right but do expect to see results before the next election, a Labour MP has said.

Torsten Bell, the MP for Swansea West who is tipped as a rising star, told Sky News: “People will give the government time. Does that mean they will like every measure we take in terms of how we do that? No, that’s politics, but they will expect to see results come the next election.”

Bell, former head of the Resolution Foundation, an economic think tank, admitted the government has had a tough start since taking office in July. “Has it all been absolutely smooth sailing? No…But what matters is the longer term,” he said.

Rachel Reeves would be an unlikely candidate to join the Communist Party of Great Britain, but she does look up to one of its founding members.

Her aides have proudly circulated an official photograph showing the chancellor sitting in front of an image of Ellen Wilkinson while preparing the budget in No 11.

• Read in full: Rachel Reeves hangs portrait of communist hero in No 11

Labour’s first budget in 15 years, which Rachel Reeves is due to deliver this afternoon, is unlikely to bring much cheer to individuals or businesses.

A hike in employers’ national insurance — which could raise as much as £20 billion — a freeze in income tax thresholds to drag up to a million people into higher bands and an increase in capital gains tax are among the key revenue raising measures the chancellor is expected to outline.

Business leaders have warned they face a “perfect storm” of increased taxes, higher wage bills and the cost of implementing Labour’s overhaul of workers’ rights.

Rachel Reeves, the chancellor, is expected to announce plans to increase employers’ national insurance contributions, which could raise up to £20 billion to fund investment in public services.

She will also confirm a 6.7 per cent rise in the minimum wage from April for more than three million workers, pushing up costs for companies.

• Read in full: Business warns Reeves of ‘perfect storm’