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UK treasury chief set to raise taxes again in her second budget
U.K. Chancellor of the Exchequer Rachel Reeves is preparing to unveil her second budget on Wednesday, signaling that further tax rises will be required to cover a significant shortfall in public finances. The combination of sluggish economic growth and mounting spending obligations has put renewed pressure on the Treasury, with economists estimating that Reeves may need to generate between £20 billion and £30 billion through threshold freezes and other targeted revenue measures.
Reeves, the first woman to lead the Treasury, returns to Parliament only a year after insisting that her previous budget would be the government’s single major tax-raising package for the current parliamentary term, which runs until 2029. But weaker-than-hoped economic performance has forced a reassessment. Although the U.K. economy briefly led growth among G7 nations earlier this year, momentum has faded once again.
“The Chancellor must strike a careful balance between reassuring markets about fiscal discipline and pushing policies that can lift long-term growth,” said Peter Arnold, chief economist at EY U.K.
The British economy has struggled to regain its pre-2008 trajectory. Analysts say it would be nearly 25% larger today had growth continued at its pre-financial-crisis pace—representing years of lost output and reduced tax revenue. Added pressures from the COVID-19 pandemic, the economic fallout of the Russia-Ukraine conflict, and the global repercussions of U.S. trade tensions have further strained the government’s budget. Brexit-related costs continue to weigh heavily as well, cutting billions from national output since the U.K. left the European Union in 2020.
On top of these structural challenges, Reeves faces mounting spending demands. The government is expected to reverse earlier cuts to public services and may consider removing the two-child benefit cap. Reeves also aims to ease the cost-of-living burden on households through measures such as freezing rail fares or reducing green levies on energy bills—policies that carry large price tags.
With a broad income-tax hike considered politically untenable despite weeks of speculation, the Chancellor is expected to rely on narrower and more technical tax adjustments. The most likely option is another freeze in income-tax thresholds, which would gradually push more earners into higher tax bands as wages rise. Other possibilities include a levy on high-value properties, adjustments to capital taxation, and limitations to generous private-pension rules.
Reeves will present her plan later on Wednesday as she seeks to stabilize the public finances without undermining the government’s broader economic agenda.
