This is not a Budget we want to repeat, says Reeves
Chancellor Rachel Reeves has told the BBC that she hopes Labour's first Budget since taking power, which includes massive tax increases, would be a one-off.
"This is not the sort of Budget we would want to repeat," she told the BBC's political editor Chris Mason.
"But this is the Budget that is needed to wipe the slate clean and to put our public finances on a firm trajectory."
Employers will bear the brunt of the £40bn in tax rises unveiled earlier by Reeves - the biggest increase in a generation.
She insists it is needed to plug a £22bn "black hole" in the nation's finances she inherited from the Conservatives and to invest in the NHS and other public services.
In a marathon 76 minute speech which outlined a change in priorities from Conservative predecessors, the first female chancellor laid out big spending and tax decisions.
Health, education and transport will see spending increases, with the biggest hike in funding for the NHS since 2010 - £22bn extra for the front line and another £3bn for equipment and buildings.
In a surprise move, Reeves decided not to continue a freeze on income tax thresholds beyond 2028, which would have dragged millions of people into the tax system for the first time or pushed them into paying higher rates.
And she announced changes to Labour’s self-imposed borrowing rules to allow the government to pump billions into the UK's infrastructure.
She said Labour would fulfil its promise to voters in July's election to “invest, invest, invest” to "drive economic growth".
But the government's promise to make the UK the fastest growing economy in the developed world has been undermined by its own financial watchdog.
The Office for Budget Responsibility said the package of economic measures unveiled by Reeves would ultimately "leave GDP largely unchanged in five years".
Asked about the underwhelming forecasts, she said: "I absolutely accept this is not the summit of my ambitions. I want the economy to grow faster than this."
She added that the “growth numbers this year and next year are being revised up and that’s good news”.
The OBR says the economy will grow by 2% in 2025, up 0.1% on its previous forecast, but it will drift down in subsequent years to 1.5% in 2028.
In her Budget speech, Reeves said “working people” would not see an increase in income tax, National Insurance or VAT, fulfilling a promise made by Labour at the general election.
Instead, employers will see an increase in National Insurance contributions on their workers’ earnings which will raise up to £25bn a year for the government.
There will also be an increase to capital gains tax on share sales and a freeze on inheritance tax thresholds.
In his response to the Budget, Conservative leader Rishi Sunak accused Reeves of “hobbling” economic growth.
“They’re taxing your job, they’re taxing your business, they’re taxing your savings. You name it, they’ll tax it," Sunak told MPs in his final Commons appearance as leader of the opposition.
But Reeves claimed any “responsible chancellor” would have been forced to do the same to “fix the foundations” of the economy.
Her Budget - the first Labour economic statement since 2010 - sees the second biggest increase in taxes in UK history.
As measured by amount of tax raised relative to the size of the economy, it is slightly smaller than Conservative Chancellor Norman Lamont’s 1993 Budget.
But she also froze petrol duty for next year - and retained a 5p cut introduced by the Tories that was due to expire in April.
Other measures included:
- Capital gains tax paid on profits from selling shares to increase from up to 20% to up to 24%
- Freeze on inheritance tax thresholds extended beyond 2028 to 2030
- VAT on private school fees from January 2025
- Air Passenger Duty on flights by private jet to go up by 50%
- New tax of £2.20 per 10ml of vaping liquid introduced from October 2026
- Tax on tobacco to increase by 2% above inflation, and 10% above inflation for hand-rolling tobacco
- Tax on non-draught alcoholic drinks to increase by the higher RPI measure of inflation, but tax on draught drinks cut by 1.7%
- The stamp duty land tax surcharge for second homes will increase by two percentage points to 5% from Thursday
In her speech, Reeves told MPs: "This is a moment of fundamental choice for Britain.
"I have made my choices. The responsible choices. To restore stability to our country. To protect working people.
"More teachers in our schools. More appointments in our NHS. More homes being built.
"Fixing the foundations of our economy. Investing in our future. Delivering change. Rebuilding Britain."
But leading business groups said the Budget was a "tough" one for business, pointing to the National Insurance hike as a blow to the ability of firms to invest.
"At first blush, there is precious little in the government’s first Budget which offers anything other than short-term pain," said Roger Barker, director of policy at the Institute of Directors.
The Liberal Democrats welcomed the extra money for the NHS "to start repairing all the damage done to local health services by the Conservatives".
But leader Sir Ed Davey said: "Raising employer’s National Insurance is a tax on jobs and high streets, and it will make the health and care crisis worse by hitting thousands of small care providers."
Scotland will receive an additional £3.4bn in Treasury funding as a result of the Budget.
First Minister John Swinney has been calling for the UK government to "immediately and significantly" increase funding for Scotland.
The SNP government has already cut £500m from its budget this year, with ministers warning that without extra cash they would need to make difficult choices when they set out their tax and spending plans for next year in December.