On November 26, 2025, Rachel Reeves, Chancellor of the Exchequer, stood at the despatch box in the House of Commons and delivered a budget that redefined economic priorities for the next decade. With a £26 billion tax increase and the dramatic scrapping of the two-child benefit cap, Reeves didn’t just adjust the books—she rewrote the social contract for millions of British families. The announcement, made at Westminster, came after a shocking leak of fiscal details that BBC economics editor Faisal Islam called "wild" and "history of the wrong sort." But Reeves pressed on, framing the moves as necessary to build a £22 billion fiscal buffer against future shocks—a move some experts call prudent, others, perilous.
The End of the Two-Child Cap: A Political Earthquake
The most emotionally charged change wasn’t a tax hike—it was a repeal. The Conservative government’s 2017 policy, which capped child benefits to two children per household, had affected 1.6 million children across the UK. Reeves scrapped it entirely, a move that will cost £3 billion annually but benefit 560,000 families with an average gain of £5,310 per year, according to the Office for Budget Responsibility (OBR). For many working parents, this wasn’t just policy—it was relief. "It’s not welfare," said one mother from Bradford, who asked not to be named. "It’s just letting us feed our third kid without choosing between groceries and heating."
Labour MPs, long critical of the cap, celebrated. "This was the right thing to do," said Shadow Minister for Children, Sarah Owen. "And it’s the kind of win that reminds people why we’re here."
Freezing Thresholds Until 2031: The Silent Tax Rise
While the cap’s removal made headlines, the real fiscal weight lay in the frozen income tax thresholds. The basic rate threshold—£12,570—and the higher rate threshold—£50,270—will remain unchanged until 2031. The OBR estimates this will push 780,000 more people into paying income tax by 2029–30, even if their real earnings haven’t grown. It’s a quiet, creeping tax rise, disguised as stability.
Business and Trade Secretary Kemi Badenoch didn’t hold back. "She swore last year it was a one-off," she said. "Now we’re locked in for six more years. That’s not fiscal responsibility—it’s broken trust."
ISA Cuts, Pension Caps, and the "Milkshake Tax"
From 2027, the tax-free ISA allowance for under-65s drops from £20,000 to £12,000—a move Reeves claims will "get households investing more in UK stocks." But industry leaders called it "needless complexity." Why? Because those over 65 keep their full £20,000 allowance. Retirees who rely on cash savings for living expenses may feel punished, while younger savers are nudged toward volatile markets they may not understand.
Then there’s the pension twist: starting in 2029, workers can only sacrifice £2,000 annually into pensions via salary sacrifice before facing National Insurance charges. That’s a blow to higher earners who’ve used this loophole to reduce their tax burden. And the "milkshake tax"? Starting in 2028, sugary milk-based drinks will join fizzy sodas under the sugar levy. Yes, you read that right. A chocolate milkshake could now cost 10p more.
Gambling, Green Levies, and the Penny’s Last Days
Meanwhile, the gambling industry took a beating. Remote gaming duty jumps from 21% to 40%, and online betting duty from 15% to 25%. But bingo halls get a lifeline—bingo duty is scrapped entirely from April 2026. "It’s a signal," said a betting industry analyst. "The state wants your online bets, but it still likes your local bingo night."
On the energy front, households will save about £150 a year from April 2026 as green levies are removed—a popular move that may help Labour’s standing in swing constituencies. And in a quirky footnote, the Treasury plans to phase out penny coins by 2026. "No one uses them anyway," said one Treasury official. "It’s just rust in the system."
Wales Gets £930 Million—But Is It Enough?
Wales will receive £505 million in Barnett consequentials and £425 million in fiscal flexibilities—nearly £1 billion in total. That’s a major boost for health, education, and infrastructure. But with public services still stretched thin, some Welsh ministers questioned whether it was enough to close the gap with England. "It’s a start," said First Minister Eluned Morgan. "But we need long-term, predictable funding—not one-off injections."
EV Mileage Duty and the Fiscal Buffer
The most forward-looking—and controversial—move is the EV mileage duty, launching in 2028. As more Britons ditch petrol cars, the Treasury loses fuel tax revenue. The new charge, yet to be priced, will apply per mile driven by electric vehicles. Critics say it’s a tax on environmental responsibility. Supporters argue it’s the only fair way to fund roads.
Reeves insists the £22 billion fiscal buffer is the real story. "We’re not just balancing books—we’re building resilience," she said. Helen Miller of the Institute for Fiscal Studies agreed: "This reduces the risk of playing out this year on repeat in 2026." But Elliott Jordan-Doak of Pantheon Macroeconomics warned: "The fiscal outlook remains perilous."
What’s Next? A Timeline of Change
- April 2026: Two-child cap scrapped, energy bills fall by £150, minimum wage rises, pensions uprated
- 2027: ISA cap reduced for under-65s
- 2028: "Milkshake tax" begins, EV mileage duty introduced
- 2029: £2,000 cap on salary sacrifice pensions
- 2031: Tax thresholds remain frozen
Frequently Asked Questions
How will the ISA cut affect ordinary savers?
Under-65s will lose £8,000 in annual tax-free savings space starting in 2027. A couple saving the full £20,000 each will now pay £1,600 more in tax annually if they invest in dividend-paying stocks. The Treasury argues this will push people into UK equities, but financial advisors warn many will simply save less—or move money into non-ISA accounts with less favorable tax treatment.
Why is the two-child cap being scrapped now?
The cap was widely seen as punitive and ineffective at reducing poverty. Labour’s internal polling showed it was deeply unpopular with working-class voters, especially in the North and Wales. Scrapping it now, ahead of the 2029 election, is both a moral and political move—giving 560,000 families an average £5,310 boost while signaling Labour’s commitment to family support over austerity.
Who will be hit hardest by the tax changes?
Middle-income earners earning between £35,000 and £60,000 will feel the squeeze most. Frozen thresholds mean more of their paychecks are taxed, while ISA cuts reduce their ability to shelter savings. Meanwhile, higher earners using salary sacrifice to reduce NI bills will lose £1,000+ annually after 2029. The poorest benefit from the two-child cap repeal, but the middle class bears the brunt of the tax hikes.
Is the EV mileage duty fair?
It’s a pragmatic but unpopular solution. With electric vehicles exempt from fuel duty, the Treasury loses £3 billion annually in road funding. The mileage charge aims to recoup that—but only if it’s structured to avoid punishing low-mileage drivers. Critics argue it disincentivizes green choices. The Treasury says it’ll be income-sensitive and capped at £150/year for average drivers, but details remain unclear.
What’s the real risk of this budget?
The biggest risk is stagnation. If wage growth doesn’t outpace inflation, the frozen tax thresholds will keep dragging more people into higher tax bands. Combine that with reduced ISA flexibility and a new EV charge, and you risk dampening consumer spending just as households are recovering from the cost-of-living crisis. The £22 billion buffer helps—but only if future shocks are truly predictable.
Why did the budget leak so badly?
BBC’s Faisal Islam called the leak "history of the wrong sort," suggesting internal security failed. The leak revealed exact tax figures and timing before the Chancellor’s speech, allowing markets to react prematurely. An internal inquiry is underway, but sources say the breach may have come from a junior official who shared documents with a journalist in error—not a deliberate leak. Either way, it damaged trust in the Treasury’s discipline.