Budget 2025: Three things Rachel Reeves’s speech boils down to – and two tricks the chancellor will fall back on

Published

3 days ago

November 25, 2025

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This is going to be a big budget – not to mention a complex budget.

It could, depending on how it lands, determine the fate of this government. And it’s hard to think of many other budgets that have been preceded by quite so much speculation, briefing, and rumour.

All of which is to say, you could be forgiven for feeling rather overwhelmed.

But in practice, what’s happening this week can really be boiled down to three things.

1. Not enough growth

The first is that the economy is not growing as fast as many people had hoped. Or, to put it another way, Britain’s productivity growth is much weaker than it once used to be.

The upshot of that is that there’s less money flowing into the exchequer in the form of tax revenues.

2. Not enough cuts

The second factor is that last year and this, the chancellor promised to make certain cuts to welfare – cuts that would have saved the government billions of pounds of spending a year.

But it has failed to implement those cuts. Put those extra billions together with the shortfall from that weaker productivity, and it’s pretty clear there is a looming hole in the public finances.

3. Not enough levers

The third thing to bear in mind is that Rachel Reeves has pledged to tie her hands in the way she responds to this fiscal hole.

She has fiscal rules that mean she can’t ignore it. She has a manifesto pledge which means she is somewhat limited in the levers she can pull to fill it.

Put it all together, and it adds up to a momentous headache for the chancellor. She needs to raise quite a lot of money and all the “easy” ways of doing it (like raising income tax rates or VAT) seem to be off the table.

So… what will she do?

Quite how she responds remains to be seen – as does the precise size of the fiscal hole. But if the rumours in Westminster are to be believed, she will fall back upon two tricks most of her predecessors have tried at various points.

First, she will deploy “fiscal drag” to squeeze extra income tax and national insurance payments out of families for the coming five years.

What this means in practice is that even though the headline rate of income tax might not go up, the amount of income we end up being taxed on will grow ever higher in the coming years.

Second, the chancellor is expected to squeeze government spending in the distant years for which she doesn’t yet need to provide detailed plans.

Together, these measures may raise somewhere in the region of £10bn. But Reeves’s big problem is that in practice she needs to raise two or three times this amount. So, how will she do that?

Most likely is that she implements a grab-bag of other tax measures: more expensive council tax for high value properties; new CGT rules; new gambling taxes and more.

No return to austerity, but an Osborne-like predicament…

If this summons up a particular memory from history, it’s precisely the same problem George Osborne faced back in 2012. He wanted to raise quite a lot of money but due to agreements with his coalition partners, he was limited in how many big taxes he could raise.

The resulting budget was, at the time at least, the single most complex budget in history. Consider: in the years between 1970 and 2010 the average UK budget contained 14 tax measures. Osborne’s 2012 budget contained a whopping 61 of them.

And not long after he delivered it, the budget started to unravel. You probably recall the pasty tax, and maybe the granny tax and the charity tax. Essentially, he was forced into a series of embarrassing U-turns. If there was a lesson, it was that trying to wodge so many money-raising measures into a single fiscal event was an accident waiting to happen.

Except that… here’s the interesting thing. In the following years, the complexity of budgets didn’t fall – it rose. Osborne broke his own complexity record the next year with the 2013 budget (73 tax measures), and then again in 2016 (86 measures). By 2020 the budget contained a staggering 103 measures. And Reeves’s own first budget, last autumn, very nearly broke this record with 94 measures.

In short, budgets have become more and more complex, chock-full of even more (often microscopic) tax measures.

In part, this is a consequence of the fact that, long ago, chancellors seem to have agreed that it would be political suicide to raise the basic rate of income tax or VAT. The consequence is that they have been forced to resort to ever smaller and fiddlier measures to make their numbers add up.

The question is whether this pattern continues this week. Do we end up with yet another astoundingly complex budget? Will that slew of measures backfire as they did for Osborne in 2012? And, more to the point, will they actually benefit the UK economy?

Politics

Budget 2025: Reeves urged to ‘make the case’ for income tax freeze – as PM hits out at defenders of ‘failed’ policy

Published

3 hours ago

November 28, 2025

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Budget 2025: Reeves urged to 'make the case' for income tax freeze - as PM hits out at defenders of 'failed' policy

Rachel Reeves needs to “make the case” to voters that extending the freeze on personal income thresholds was the “fairest” way to increase taxes, Baroness Harriet Harman has said.

Speaking to Sky News political editor Beth Rigby on the Electoral Dysfunction podcast, the Labour peer said the chancellor needed to explain that her decision would “protect people’s cost of living if they’re on low incomes”.

In her budget on Wednesday, Ms Reeves extended the freeze on income tax thresholds – introduced by the Conservatives in 2021 and due to expire in 2028 – by three years.

The move – described by critics as a “stealth tax” – is estimated to raise £8bn for the exchequer in 2029-2030 by dragging some 1.7 million people into a higher tax band as their pay goes up.

The chancellor previously said she would not freeze thresholds as it would “hurt working people” – prompting accusations she has broken the trust of voters.

During the general election campaign, Labour promised not to increase VAT, national insurance or income tax rates.

Sir Keir Starmer has insisted there’s been no manifesto breach, but acknowledged people were being asked to “contribute” to protect public services.

He has also launched a staunch defence of the government’s decision to scrap the two-child benefit cap, with its estimated cost of around £3bn by the end of this parliament.

‘A moral failure’

The prime minister condemned the Conservative policy as a “failed social experiment” and said those who defend it stand for “a moral failure and an economic disaster”.

“The record highs of child poverty in this country aren’t just numbers on a spreadsheet – they mean millions of children are going to bed hungry, falling behind at school, and growing up believing that a better future is out of reach despite their parents doing everything right,” he said.

The two-child limit restricts child tax credit and universal credit to the first two children in most households.

The government believes lifting the limit will pull 450,000 children out of poverty, which it argues will ultimately help reduce costs by preventing knock-on issues like dependency on welfare – and help people find jobs.

Speaking to Rigby, Baroness Harman said Ms Reeves now needed to convince “the woman on the doorstep” of why she’s raised taxes in the way that she has.

“I think Rachel really answered it very, very clearly when she said, ‘well, actually, we haven’t broken the manifesto because the manifesto was about rates’.

“And you remember there was a big kerfuffle before the budget about whether they would increase the rate of income tax or the rate of national insurance, and they backed off that because that would have been a breach of the manifesto.

“But she has had to increase the tax take, and she’s done it by increasing by freezing the thresholds, which she says she didn’t want to do. But she’s tried to do it with the fairest possible way, with counterbalancing support for people on low incomes.”

She added: “And that is the argument that’s now got to be had with the public. The Labour members of parliament are happy about it. The markets essentially are happy about it. But she needs to make the case, and everybody in the government is going to need to make the case about it.

“This was a difficult thing to do, but it’s been done in the fairest possible way, and it’s for the good, because it will protect people’s cost of living if they’re on low incomes.”

Politics

Is the government gaslighting us over tax rises?

Published

3 hours ago

November 28, 2025

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Is the government gaslighting us over tax rises?

👉 Click here to listen to Electoral Dysfunction on your podcast app 👈

With all the speculation, it was always going to be a big one, but Rachel Reeves’s second budget turned into a political earthquake before she even stood up at the despatch box.

In this bumper budget special, Beth, Ruth, and Harriet unpick what happened on one of the most dramatic days in the fiscal calendar.

With the unprecedented leak of the Office for Budget Responsibility’s assessment giving the opposition a sneak preview, Kemi Badenoch delivered a fiery attack. Listeners weigh in on their thoughts of her comebacks.

Send us your messages and Christmas-themed questions on WhatsApp at 07934 200 444 or email electoraldysfunction@sky.uk.

And if you didn’t know, you can also watch Beth, Harriet, and Ruth on YouTube.

St. James’s Place sponsors Electoral Dysfunction on Sky News, learn more here.

Politics

South Africa’s central bank says no ‘strong immediate need’ for CBDC

Published

5 hours ago

November 28, 2025

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South Africa’s central bank says no ‘strong immediate need’ for CBDC

The South African Reserve Bank says it doesn’t see a need for a central bank digital currency in the near term, instead saying the country should modernize its payments system.

The South African central bank said in a paper released on Thursday that there was no “strong immediate need” for a retail CBDC, though deploying one was technically feasible.

It said that existing initiatives, such as a program to modernize the payments system and expand non-bank participation in the national payment system, should remain the priority for now.

“While the SARB does not currently advocate for the implementation of a retail CBDC, it will continue to monitor developments and will remain prepared to act should the need arise.”

The central bank will shift its focus toward exploring wholesale CBDC applications and cross-border payment efficiency, while continuing to monitor retail CBDC developments, it stated.

Central bank issues crypto and stablecoin warning

The research examined whether a retail CBDC would address gaps in South Africa’s payment system, revealing that challenges persist as roughly 16% of adults remain unbanked.

For a CBDC to succeed, it would need to match or exceed the benefits of cash, including offline functionality, universal acceptance, low costs, ease of use, and privacy features, it stated.

South Africa has turned against crypto recently, with a warning from its central bank about crypto and stablecoins.

In a report released earlier this week, the SARB flagged “crypto assets and stablecoins” as a new risk for technology-enabled financial innovation.

The bank also cautioned that crypto can be used to circumvent Exchange Control Regulations, which control the inflows and outflows of funds to South Africa.

CBDC race continues across the globe

Only three countries have officially launched a CBDC: Nigeria, Jamaica and The Bahamas, according to the Atlantic Council CBDC Tracker.

There are 49 countries that have CBDCs in a pilot testing phase, 20 countries actively developing one, and 36 countries are researching a CBDC. Meanwhile, the United States shelved its CBDC plans under the Trump administration.