The budget will increase taxes by £40bn, with the lion’s share coming from a £25bn rise in employers’ national insurance contributions, the chancellor announced at the budget.
Rachel Reeves said the amount businesses will pay on their employees’ national insurance contributions will increase from 13.8% to 15% from April 2025, with the current £9,100 annual threshold lowered to £5,000, in what she called a “difficult choice” to make.
The Office for Budget Responsibility (OBR), which monitors the government’s spending plans and performance, said most of the burden from the increase will be passed on to workers through lower wages, and consumers through higher prices.
It estimated the national insurance hike would reduce the average hours worked by the equivalent of 50,000 hours.
The £40bn rise in taxes is thought to be the largest increase at a budget since John Major’s government in 1993 and is set to more than fill the £22bn “black hole” Labour said the Conservative government left them with.
Ms Reeves also announced the current freeze on income tax thresholds will end in 2028/29 and will be uprated in line with inflation after that.
The previous Conservative government froze the thresholds which meant more people paying higher rates of tax as their salary increases and they move into higher tax bands.
The OBR said the tax burden will reach “a historic high of 38% of GDP by 2029/30” and predicted inflation and interest rates will both be higher as a result of the budget.
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Ms Reeves said a “line-by-line breakdown” of the black hole will be published, which she said shows there were “hundreds of unfunded pressures on the public finances” under the Conservatives.
The chancellor, who said she was “deeply proud” to be the country’s first female chancellor, insisted the Labour government would “invest, invest, invest” and put “more pounds in people’s pockets”.
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0:45
‘This budget raises taxes by £40bn’
Some of the other major changes the chancellor also announced include:
• Fuel duty will stay frozen next year and 5p cut to remain
• Capital gains tax lower rate will increase from 10% to 18%, higher rate from 20% to 24%
• Residential property capital gains tax will remain at 18% and 24%
• Two “permanently lower” business tax rates for retail, hospitality and leisure properties
• 40% relief on business rates in 2025-26 up to a £110,000 cap
• Inheritance tax thresholds frozen until 2030
• Higher rate stamp duty for second homes increased to 5% from Thursday
• Alcohol duty rates on non-draught drinks to increase in line with RPI from February
• Draught alcohol duty cut by 1.7% – 1p off a pint
• HS2 will go to Euston in central London
• Every government department must make 2% cuts by next year
• £22.6bn extra for the NHS’ day-to-day health budget, £3.1bn more for the capital budget
• £2.3bn for schools to hire teachers next year, £6.7bn for the schools capital budget
• £2.9bn for Armed Forces next year
• £500m increase in road budgets next year.
Image: Rachel Reeves and her Treasury team before the budget. Pic: Reuters
The chancellor started her budget speech by saying the country “voted for change” and “responsible leadership” on 4 July at the general election – and went on to attack the “irresponsibility” of the previous Conservative government.
“We must restore economic stability and turn the page on the last 14 years,” she said.
Ms Reeves added: “The party opposite failed our country. Their austerity broke our National Health Service. The British people have inherited their failure.”
“They called an election to avoid making difficult choices,” she continued.
The chancellor outlined her priorities as economic growth and the NHS, and pledged an end to “short-termism”.
Labour promised to keep the triple lock on pensions, where the state pension goes up each year by whichever is higher of 2%, inflation or earnings growth.
She said that means it will be uprated by 4.1% next year so more than 12m pensioners will be up to £470 better off.
She also set aside £11.8bn for compensation for victims of the infected blood scandal, and £1.8bn for victims of the Post Office IT scandal.
Ahead of the first Labour budget since Alistair Darling’s in 2010, Labour committed in its election manifesto to not increase income tax, national insurance or VAT on “working people”, which Ms Reeves said she had kept to.
Various ministers got into a tangle over who exactly qualified as a working person in the weeks before the budget.
Image: Pic: Reuters
A few plans were leaked or announced ahead of the budget, including:
• All private school fees will include VAT from January, business tax relief to be removed from private schools in April
• An increase on employers’ national insurance – but they did not say by how much
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Reform UK deputy leader Richard Tice has said it was “right” to suspend the MP at the centre of bullying and threat allegations.
The party announced on Friday that they had reported Great Yarmouth MP Rupert Lowe to police following allegations of bullying made by two women and threats made against Reform’s chair.
Many have questioned the timing of the announcement, as it came the day after Mr Lowe appeared to question Nigel Farage‘s leadership of the party. Mr Lowe has denied all the allegations.
Mr Tice was asked why the incidents have only come to light now, when complaint were made to police in December.
Image: Rupert Lowe denies the allegations against him. Pic: PA
He told Sunday Morning with Trevor Phillips: “There’s been a variety of instances and you have to make difficult judgements through the process.
“But of course it’s unfortunate. Of course it’s difficult.
“But there are these allegations of bullying by two separate female members of staff to the parliamentary authorities. Those clearly have to be dealt with in the proper, responsible way.”
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He added: “Rupert has been doing some great work on a variety of important issues, but ultimately, if you can’t work with someone, if the situation becomes impossible, which regrettably… then you have to say, this is not going to end well.
“And so we made the right judgement.”
Mr Tice also pointed out that if the party had brushed the incident “under the carpet” or tried to cover it up, then “everyone would’ve been raging”.
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Reform UK row explained
Asked if the situation was “fishy” due to the timing of the party’s pronouncement, Mr Tice strongly disagreed.
“The reality is, behind the scenes, there have been a number of difficulties and challenges, and you get to the point where you say, enough’s enough,” he said.
Mr Farage wrote in the Telegraph overnight, saying the party “did our best to keep a lid on things but, in the end, containment strategies invariably fail”.
Mr Tice said an incident with party chair Zia Yusuf recently was the catalyst for taking action against Mr Lowe.
Mr Lowe has vehemently denied the claims against him, and said he was targeted for challenging the way the party was being run.
Posting on social media just before Mr Tice’s interview, Mr Lowe said this included his outspoken stance on wanting to deport all illegal migrants.
He said: “I have been warned by those at the top of Reform about my position on deportations. As you likely know from reading my extensive output on the subject, I did not listen to a word said.
The UK is not considering introducing conscription to ready the country for a potential war – but decisions may be needed in the future to respond to the “new reality” we are now living in, a minister has told Sky News.
In an interview with Trevor Phillips, Latvian President Edgars Rinkeviks has urged European countries to follow his country’s lead and “absolutely” introduce conscription, conceding the continent is “quite weak” militarily.
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‘Debate’ in Latvia about introducing conscription for women
Asked if the UK government is considering introducing the measure to boost the armed forces, Cabinet Office minister Pat McFadden said it is important the UK does not find itself operating under “old assumptions” – and that it may be “decisions are needed in the future that respond to a new reality”.
He told Sunday Morning with Trevor Phillips: “We are not considering conscription, but of course we have announced a major increase in defence expenditure.
“We do have to recognise that the world has changed. The phrase ‘step up’ is used a lot. Europe does have to step up in terms of its own defence.
“President Trump isn’t actually the first president to say that, but he said it more loudly and with more force than his predecessors – so, I think we have got to recognise that moment.”
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He added: “When the world is changing as fast as it is, it’s important that we don’t cling on to old assumptions.
“I think the prime minister has played a tremendous role in recent weeks in responding to that situation and explaining it to the public.
“That is why the decision on increasing defence expenditure was needed.
“It may be why other decisions are needed in the future that respond to a new reality, and that we don’t find ourselves caught operating under the same assumption as we used to in the past when the situation has changed.”
‘Battlefield is changing’
Sir Keir Starmer has promised to increase defence spending to 2.5% of GDP but has not set out when this will be achieved. Ministers say a defence review to be published this spring will set out a “roadmap” to it.
The number is much lower than the US president has demanded NATO members spend on defence, with Mr Trump saying they should all be spending 5% – an amount last seen during the Cold War.
Asked if the “new reality” involved a bigger army, Mr McFadden said ministers were waiting for the conclusion of the review.
But he added: “One thing is for sure, you would not spend money today on the same things as you would 10 years ago.
“The experience of the three years of the war in Ukraine has shown just how fast the battlefield is changing in terms of cyber, drones, the use of intelligence.”
History of conscription in UK
In the UK, military conscription has existed for two periods in modern times.
The first was from 1916 to 1920 following the outbreak of the First World War in 1914, due to the dwindling number of volunteers for military service.
Lord Kitchener’s campaign – promoted by his famous “Your Country Needs You” poster – had encouraged more than one million men to enlist by January 1915. But this was not enough.
In January 1916, after much debate, the Military Service Act was passed. This imposed conscription on all single men aged between 18 and 41, but exempted the medically unfit, clergymen, teachers and certain classes of industrial worker.
Conscientious objectors – men who objected to fighting on moral grounds – were also exempt, and were given civilian jobs or non-fighting roles at the front.
Conscription was not applied to Ireland because of the 1916 Easter Rising, although many Irishmen volunteered to fight.
A second Act passed in May 1916 extended conscription to married men, and in 1918, during the last months of the war, the age limit was raised to 51.
Conscription was extended until 1920 to allow the army to deal with continuing trouble spots in the Empire and parts of Europe.
In the run-up to the Second World War, plans for limited conscription applying to single men aged between 20 and 22 were given parliamentary approval in the Military Training Act in May 1939. This required men to undertake six months’ military training.
When Britain declared war against Germany on 3 September 1939, the National Service (Armed Forces) Act imposed conscription on all males aged between 18 and 41.
Those medically unfit were exempt, as were others in key industries and jobs such as baking, farming, medicine, and engineering, while conscientious objectors had to appear before a tribunal to argue their reasons for refusing to join up.
In December 1941, a second National Service Act was approved, making all unmarried women and all childless widows between the ages of 20 and 30 liable to call-up.
The last conscription term ended in 1960, although many soldiers chose to continue in the service beyond 1963.
The Conservatives’ first policy announcement of last year’s general election campaign was that the party would introduce a new form of mandatory National Service for 18-year-olds.
Asked if the Tories still stood by the plan which was in their manifesto, shadow home secretary Chris Philp told Sunday Morning with Trevor Phillips: “We are obviously not going to write our manifesto now, so I am not going to recommit to things in the previous manifesto.
“We’ll need to do the thinking properly. I am not going to speculate four years ahead of the election.
“I don’t think it was really exactly conscription that was being proposed, it was a National Citizen Service which is a bit different.
“The idea of getting younger people to do voluntary work and perform useful tasks is not a bad idea.”
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General Sir Richard Sherriff, ex-deputy supreme allied commander of the military organisation, said: “I think we need to get over many of the cultural hang-ups and assumptions, and frankly think the unthinkable.
“I think we need to go further and look carefully at conscription.”