UK’s Reeves comes back for more tax to bolster finances

[LONDON] British finance minister Rachel Reeves delivered a budget on Wednesday (Nov 26) that will take more tax from workers, people saving for a pension and from investors to give herself more room for meeting her borrowing targets.

The country’s fiscal watchdog, the Office for Budget Responsibility (OBR), cut its forecasts for growth in the British economy over the coming years.

But in a figure closely watched by investors assessing Britain’s borrowing risks, the OBR said the government will now have more than double its previous buffer for meeting its fiscal targets even as it raises spending on welfare.

This result was in large part due to more than £26 billion (S$44.5 billion) of fresh tax rises which come just over a year after Reeves ordered £40 billion of tax hikes – the biggest since the 1990s. She had promised last year’s rises would be a one-off.

“No doubt, we will face opposition again. But I have yet to see a credible, or a fairer alternative plan for working people,” Reeves said to cheers from Labour Party lawmakers in parliament.

“I am asking everyone to make a contribution, but I can keep that contribution as low as possible because I will make further reforms to our tax system today to make it fairer and to ensure the wealthiest contribute the most.”

British government bond yields – which are sensitive to concerns about higher borrowing – were lower at 1340 GMT than they were before the OBR report was published in error ahead of Reeves’ annual tax and spending speech to parliament.

The fall in borrowing costs suggested investors were largely comfortable with the budget plan.

The value of sterling rose against the US dollar and the euro.

SEE ALSO

UK to unveil tax-raising budget

The unprecedented early release, which was first reported by Reuters, revealed the key announcements from the budget on taxes, economic growth and individual policy changes.

Reeves had promised to take “fair and necessary choices” to improve the country and speed up economic growth but she recognised the unhappiness among voters. Although Britain’s next national election is not due until 2029, the authority of Reeves and Prime Minister Keir Starmer has been questioned within the centre-left Labour Party.

The OBR said the headroom – the amount of extra spending or tax cuts possible for the government while staying within its budget rules - now stood at almost £22 billion in five years’ time.

In March, the OBR had forecast headroom of £9.9 billion, a historically low level which was eaten up by a downgrade of the country’s economic outlook, higher-than-expected borrowing costs and a U-turn on welfare reform.

A Reuters poll of economists published on Tuesday pointed to a median forecast for an increase in the headroom to just under £17 billion.

The OBR said in its budget assessment that tax rises planned by Reeves would raise an annual £26.1 billion by 2029-30, chief among them a longer freeze on the thresholds at which people start to pay income tax and a higher rate of income tax. The two-year extension of the freeze on income tax thresholds – which was first introduced by the previous Conservative government – would raise an extra £8.0 billion in the 2029/30 financial year, the OBR said.

Reeves said in her first budget last year that she was returning stability to the public finances after the shocks delivered by Brexit, the coronavirus pandemic and the “mini-budget” crisis of former Conservative Prime Minister Liz Truss.

The generosity of pension incentives was scaled back with social security charges on salary-sacrificed pension contributions raising almost 5 billion pounds.

Increasing tax rates on dividends, property and savings income by 2 percentage points would raise £2.1 billion, the OBR said.

An annual tax on homes worth more than £2 million was expected to raise £0.4 billion in 2029/30.

Public spending was due to grow every year as a result of the measures in the budget - reaching an extra £11 billion in 2029/30 - primarily to pay for a government U-turn in July on welfare cuts and lift a two-child welfare limit for families.

The OBR cut its forecasts for economic growth, saying gross domestic product was forecast to grow by 1.5 per cent on average over the five-year forecast period, 0.3 percentage points slower than it expected in March due to lower productivity growth.

Reeves vowed she would do better: “We beat the forecasts this year and we will beat them again,” she told parliament.

Meanwhile, OBR, apologised after it published its budget forecasts before Reeves delivered them in parliament, in an unprecedented error for the annual event.

The document, which was first reported by Reuters, meant the key announcements from the budget - on taxes, economic growth and individual policy changes - were all reported more than an hour before Reeves stood up to deliver her budget to the House of Commons.

The OBR said a link to its November 2025 Economic and Fiscal Outlook had gone live on its website early. Reeves said the early release was deeply disappointing and a serious error. Her opposition counterpart, Mel Stride, said it was utterly outrageous.

“A link to our Economic and fiscal outlook document went live on our website too early this morning. It has been removed,” the OBR said on X.

“We apologise for this technical error and have initiated an investigation into how this happened.”

It said it would report to the Treasury and the Treasury parliamentary committee on how the error had happened.

“This is deeply disappointing and a serious error on their (the OBR’s) part,” Reeves said. The document, which is usually published after the finance minister’s speech has ended, was uploaded to the OBR website and available to download on an unprotected link. The link was not advertised on the website. REUTERS