Rachel Reeves insists tax on working people kept at ‘absolute minimum’ at Budget

Rachel Reeves has insisted taxes have been kept at “an absolute minimum on ordinary working people”, even as an influential think tank said low-to-middle earners would have been better off with their tax rates rising than their thresholds being frozen.

The defiant-sounding Chancellor also defended her position, saying: “You’re not going to write my obituary today,” after delivering a Budget she was “incredibly proud” of.

Her decisions put Britain on course for a record tax burden as she hiked levies by £26 billion after weaker economic forecasts left holes in her previous spending plans.

The increases are also needed to pay for increased welfare spending, with Ms Reeves announcing the abolition of the two-child benefit cap, expected to lift 450,000 children out of poverty.

“I’m not going to apologise for lifting the two-child limit,” Ms Reeves said on Thursday as she rejected assertions that she hiked taxes on working people in order to fund the rising welfare bill.

Having abandoned plans for a manifesto-busting income tax rise, the Chancellor opted for a range of smaller tax increases to pay for Government spending and build a larger buffer against her borrowing rules.

These include a new pay-per-mile tax for electric vehicles, increased taxes on online betting and a so-called “mansion tax” on homes worth more than £2 million.

But she continued to face accusations of breaching Labour’s election promise not to raise taxes on working people after deciding to keep tax thresholds frozen until 2030/31 and levying national insurance on some pension contributions.

The freeze in thresholds will result in 780,000 more basic-rate, 920,000 more higher-rate, and 4,000 more additional-rate income tax payers in 2029/30 as earnings rise over time. Scotland has a separate income tax system.

People are dragged into paying 20% income tax if their earnings rise above £12,570, with the 40% rate from £50,271 and the 45% band from £125,140.

Ms Reeves insisted the threshold freeze did not breach Labour’s manifesto commitment not to increase income tax or national insurance.

And she said the burden on working people – the group Labour had promised to protect – was being kept to a minimum.

She told Sky News: “I do recognise that that will mean that working people pay a bit more. But I’ve kept that contribution to an absolute minimum by closing … a number of tax loopholes and also bearing down on Government spending, on waste and inefficiency.”

The Resolution Foundation argued that Ms Reeves’s decision to stick to her “manifesto tax pledge has cost millions of low-to-middle earners, who would have been better off with their tax rates rising than their thresholds being frozen”.

The think tank said in its initial response that raising all rates by 1p would have been less costly than freezing thresholds for anyone with an income below £35,000.

“Indeed, all but the top 10% of the income distribution are worse off because of opting for threshold freezes over rate rises (which raise similar amounts of revenue),” it said.

Chief executive Ruth Curtice said most of Budget’s impact would be felt in three years.

“Those threshold freezes kick in in 2028. Some of the other measures also not coming in – for example the mansion tax and the salary sacrifice – until 2028, so that’s when most of the pain from this Budget will be felt,” she told BBC Radio 4’s Today programme.

“This Parliament is set to be second only to the last parliament for (living) standards… This decade continues to look really, really tough.”

On welfare, the think tank boss said that while spending on pensioner and health and disability benefits is rising more than expected, “we didn’t hear much yesterday of how they (the Government) might take action in the future” to save money in that area.

Ms Reeves denied that she was hiking workers’ taxes in order to put money towards the soaring welfare bill.

She told Times Radio: “I don’t accept that.

“The OBR say that their revisions to productivity, reflecting the Conservatives’ legacy, is going to mean £16 billion less tax revenue, and as a result, we have to fill that gap. But if we can grow the economy, as I’m determined to do, we can get that money back.”

She told the radio presenter challenging her over rising welfare costs that “lots of people have tried to write me off over the last 16 months, and you’re not going to write my obituary today”.

The Labour Cabinet minister refused to “apologise” for axing the two-child limit for universal credit – a measure to ease child poverty warmly welcomed by Labour MPs but costing £3 billion a year by 2029/30.

She described it as a “good investment” that would reduce future costs by giving children from low-income households a better start to life, and said 60% of the families that would gain from the abolition had parents in work.

“When I became Chancellor, in my very first speech, I said that I would know my time as Chancellor has been a success if there are ordinary kids from working class backgrounds living more fulfilling lives,” she told Sky News.

“I believe I achieved that in my Budget yesterday. It’s a Budget that I’m incredibly proud of, and I look forward to delivering many more budgets to help grow our economy and put more money in working people’s pockets.”

But Tory shadow chancellor Sir Mel Stride said Labour’s “very poor” measures would “lead to 25,000 more people going on to benefits as a direct consequence of making them more attractive”.

Ms Reeves acknowledged the OBR had revised down Britain’s economic growth projections from 2026, but pointed to its upward revision of gross domestic product growth for this year from 1% to 1.5%.

“We’ve defied the forecasts this year, and I’m determined to defy them next year and the year after as well,” she said.

The Budget on Wednesday was overshadowed by the unprecedented leak of details of Ms Reeves’s plans before she stood up in the Commons chamber.

The chair of the Office for Budget Responsibility Richard Hughes has indicated that an “external person” may have been behind the premature publication of the watchdog’s document.

Mr Hughes said an investigation has been launched and confirmed he would quit if the Chancellor and the Commons committee lost confidence in him over the incident.

Ms Reeves said she retains confidence in Mr Hughes, but added the material’s early release “did let me down” and “it must never happen again”.