Rachel Reeves has abolished the two-child benefit cap in a Budget she says will deliver “the biggest reduction in child poverty over a parliament since records began” – but warned that “everyone” will be asked to make a contribution through higher effective tax bills.
The Chancellor framed it as the Government’s job to cut child poverty, saying she did not believe children should be “penalised” for the circumstances of their birth. The two-child limit, she argued, had failed on its own terms – it had not reduced the benefits bill or changed family size, but had pushed “hundreds of thousands of children” into poverty.
Reeves also attacked the so-called rape clause, which forces women to prove a child was conceived through rape to qualify for an exemption from the cap. Calling it “dehumanising” and “grotesque”, she said that as Britain’s first female chancellor she would “not tolerate” it any longer. The two-child cap will be scrapped in full from April, lifting an estimated 450,000 children out of poverty when combined with other measures, she said.
The decision comes alongside a raft of tax rises on wealth, property and assets, and an extension of existing freezes that will pull more workers into higher tax bands.
Income tax and equivalent National Insurance thresholds will now remain frozen for an extra three years from 2028, on top of the previous Conservative freeze, while the student loan repayment threshold will also be held down.
Reeves insisted this was unavoidable if Britain was to “break the cycle of austerity” and fund better public services.
“I am asking everyone to make a contribution,” she said, but added that she was determined to keep that contribution “as low as possible” by closing loopholes and making the wealthiest pay more.
A new high-value council tax surcharge will hit properties worth more than £2 million from 2028, starting at £2,500 a year and rising to £7,500 for homes worth more than £5 million.
Reeves also announced a £2,000 cap on salary sacrifice pension arrangements, with contributions above that level subject to National Insurance, arguing the current system disproportionately benefits high earners and financial sector bonuses. Tax on income from property, savings and dividends will rise by two percentage points, narrowing the gap between tax on assets and tax on work.
Drivers will face a new per-mile charge on electric vehicles, with EV owners paying 3p per mile and plug-in hybrids 1.5p per mile alongside vehicle excise duty. But fuel duty will be frozen until September 2026, with a 5p cut extended.
On the cost of living, Reeves repeated her pledge to cut the cost of living and get family energy bills down, saying the Budget would put “money off bills and in the pockets of working people”. Fuel duty, rail fares and prescription charges will be frozen into 2026, and the £3 bus fare cap extended.
The state pension will rise by 4.8 per cent in line with the triple lock, worth £440 more a year on the basic state pension and £575 on the new state pension. The national minimum wage and national living wage will increase again in line with Low Pay Commission recommendations, including rises for 18 to 20-year-olds.
Reeves coupled the removal of the two-child cap with a wider package aimed at children and families. She confirmed an extra £5 million for libraries in secondary schools, building on a previous £10 million pledge to ensure every primary has a library, and £18 million to upgrade playgrounds across England. She said the Conservatives had “left classrooms crumbling and waiting lists sky-high; weakened our productivity and choked our economic growth”.
On welfare and pensions, Reeves confirmed changes to Motability to remove luxury vehicles from the scheme and moves to tighten access to the UK state pension for people living abroad, increasing residency and contribution requirements.
In a major shake-up of gambling tax, remote gaming duty will rise sharply, with online betting and gaming duties increasing to raise more than £1 billion a year by 2031. Reeves said she was targeting “the highest levels of harm” in online gambling and confirmed there would be no changes to taxes on in-person gambling or horse racing, while bingo duty will be abolished from April.
Cllr Steve Gallant, Labour group leader on East Riding Council, said the Budget continued to “repair our economy and services after the years of Tory austerity”. He added: “As well as reducing debt and borrowing she has announced many measures which will put money in people’s pockets and push inflation down.
“Energy bills will be cut by £150, fuel duty and rail fares frozen will all reduce inflation. Pensioners will get a £550 boost to their pensions and scrapping the Child Benefit cap will take 450,000 children out of poverty. Wages have risen more since Labour came in than in the 10 previous years.
“But the Tories more than doubled the National Debt to £2.6 trillion which means we pay out over £100 billion just in interest. So revenue has to be raised, but the increases will fall on the wealthy like the mansion tax on houses worth £2 million or more.
“Overall this is a good Labour budget, supporting families and pensioners, reducing inflation to bring the cost of living down for all and at the same time as putting the economy on a path to stronger growth.”
However, the Conservative Beverley and Holderness MP Graham Stuart attacked Reeves for going back on previous pledges and dismissed her plans as a “benefits budget”.
He said: “Everyone in Holderness who goes out with sweat on their brow to earn a living for their family, I think is going to be upset that they’re being asked to pay even more money for Rachel Reeves’ mistakes and subsidise those people who don’t go and work as hard as they do.”
“Rachel Reeves could have done what the Conservatives have promised and removed the business rates from 250,000 businesses so that shops in Withernsea, Patrington and other areas can thrive. Instead, of course, she’s shoved up the minimum wage, which has to be paid by those small businesses, which will hurt those businesses and mean there are even more people out of work.
“We’ve already seen unemployment go up every single month since Labour came into office, and it’s the bakeries and the pubs and the small businesses across Holderness that are paying the price, and we’re seeing more of them closing and the opportunities for young people and others to get a job being extinguished.
“Government spending is out of control – we need to see responsible cuts in spending, which is why we’ve laid out £47 billion of savings, and £23 billion in benefit cuts so that we stop paying benefits to people for very minor ailments.
“The country is drowning in debt, drowning in higher and higher taxes, and it’s not backing the people who are the backbone of this country, the people who go out to work every day.”
Cllr Jon Dimberline, Reform leader on East Riding Council, said: “From what I know about the budget, I haven’t seen any mention of scrapping stamp duty, which was being discussed. If she does scrap it to get the housing market moving, that would have been a fantastic thing.
“The minimum wage for young people and everyone else is going up by about 50 pence. I think it could have waited a year or two because small businesses are already struggling. It’s costly to pay staff, which is great for the employees, but everything else is also going up. For example, running a café can be expensive even if you don’t make much money in a day.
“The mansion tax is probably fine if you own a property worth several million, so that’s not so bad. But she’s also going to ‘hammer’ landlords. All that will do is push rents up, because they’ll have more work with quarterly returns and higher taxes on what they earn. That just has knock-on effects for the people the government claims it’s trying to protect. Punishing landlords doesn’t seem fair.
“She’s scrapping the two-child benefit cap. Personally, I don’t see that as a great thing, because some people are having lots of children to claim benefits without working. There’s no encouragement for people to have a couple of kids and get out to work. From my perspective, that’s a waste of money.
“It’s good, however, that national insurance, income tax, and VAT aren’t being raised in the budget, that’s a positive. The state pension is going up by 4.8 per cent, which is good news for pensioners.
“She’s also introducing a three-pence-a-mile charge on electric and hybrid vehicles. For the past five years, people have been encouraged to buy electric cars, and now that they have them, they’ll be charged extra on top of running costs and vehicle taxes.
“It feels like the Government is constantly taking money from hard-working people and giving it to those who stay at home and have lots of children. If the government didn’t waste billions abroad and on themselves, maybe we wouldn’t need all these extra taxes.”
“The government has loaded struggling households and high streets with yet more tax rises to pay for its own mistakes.
Cllr Denis Healy, Lib Dem group leader on East Riding Council, said: “Rachel Reeves has missed the opportunity to take bold action to slash the cost of living, rescue our high streets, and start fixing the mess left by Brexit, by negotiating a new Customs Union with the EU, to grow our economy and bring in tens of billions for the Exchequer.
“This was a botched budget delivered by a Chancellor who has diagnosed the disease but refuses to administer the cure.
“This Government has chosen to reject the single biggest thing it could do to turbocharge economic growth and repair the £90 million Brexit black hole.
“Labour was elected on a promise of tackling the cost of living crisis and growing the economy – and this is the second budget where it has failed to do either.
“For millions of people struggling with higher bills, all this budget offers is higher taxes.”
The Gazette has approached representatives of the other parties for comment.