Chancellor of the Exchequer Rachel Reeves said she would raise UK taxes by £40 billion ($51.8 billion) in her historic first budget, to boost spending on public services and to cover a fiscal hole she said was left by the previous Conservative government.
“The scale and seriousness of the situation that we have inherited cannot be underestimated,” Reeves said in the House of Commons on Wednesday, the first female chancellor to deliver a budget in the 800-year history of the role. “Any chancellor standing here today would face this reality, and any responsible chancellor would take action. That is why today I am restoring stability to our public finances and rebuilding our public services.”
The budget is a make-or-break moment for both Reeves and new Prime Minister Keir Starmer, as they try to recover from a polling slump since their Labour Party won power in July and bid to set up an election win in five years’ time.
The last government to raise taxes by an equivalent amount was in 1993, when Conservative Norman Lamont was chancellor. The taxes will mean she meets her “stability rule,” that day-to-day spending is paid out of taxes, in 2027-28 — two years earlier than the rule requires.
“That will provide a tougher constraint on day-to-day spending, so difficult decisions cannot be delayed or deferred,” she said.
In a major move, Reeves increased the national insurance payroll tax for businesses by 1.2 percentage points to 15% from April 2025, while also reducing the threshold at which companies start paying the tax. She said that would raise £25 billion by the end of the Parliament. Reeves also decided to freeze fuel duty, alongside announcing an increase in the minimum wage.
UK government bonds surged and the pound extended losses as Reeves spoke. The yield on 10-year government bonds fell as much as 12 basis points, the biggest decline in more than two months. Sterling traded as much as 0.6% weaker at $1.2937, an almost one-week low.
Domestic-focused stocks extended gains as gilt yields declined. Homebuilder Barratt Redrow Plc was among the biggest advancers, rising 2.3%.
Reeves is also set to change the debt measure targeted by the government for its other fiscal rule — which requires debt to be falling as a share of the economy in five years’ time — to give herself space to borrow as much as an extra £70 billion for investment over the course of Labour’s term in office.
