Chancellor chooses a Budget to rebuild Britain - overview

The Chancellor has delivered a Budget to fix the foundations to deliver on the promise of change after a decade and a half of stagnation. She has set out plans to fix the NHS and rebuild Britain, while ensuring working people don't face higher taxes in their payslips.

The government was handed a challenging inheritance; £22 billion of unfunded in-year spending pressures, debt at its highest since the 1960s, unrealistic plans for departmental spending, and stagnating living standards.

As a mission-led government, the Chancellor has today made clear the difficult choices this government will make to rebuild the country. This Budget takes the difficult decisions on tax, spending and welfare to restore economic and fiscal stability, so that the government can invest in the country's future and achieve its mission for growth. This means hospital waiting lists will be cut with room to invest in Britain to rebuild our schools, hospitals and broken roads.

The government is protecting working people's living standards by raising the National Living Wage, cutting duty on draught pints, keeping bus fares down, and not increasing the main rates of income tax, employee national insurance, and VAT.

The Budget will help rebuild Britain by boosting public investment by over £100 billion over the next five years while exceeding the manifesto commitment to fix an extra 1 million potholes per year with an additional £500 million for local road maintenance in 2025-26.

Fixing the NHS and reforming public services

By repairing the public finances and restoring economic stability, the Budget delivers on a new settlement for public services, increasing day to day spending for public services by 3.3% on average in real terms over this year and next to fix the NHS, boost the education system and repair the criminal justice system.

This government has been clear from the start it will not tolerate wasteful spending -- and that means treating taxpayers' money with respect. For the next financial year, all government departments have a 2% productivity, efficiency, and savings target, that is expected to save billions of pounds.

• The Chancellor has confirmed an additional £22.6 billion for day-to-day spending over two years for the Department of Health and Social care, supporting the NHS to deliver an extra 40,000 elective appointments per week, delivering on one of the Government's first aims in office to reduce waiting times in the NHS.
• The government is investing around £1.5 billion capital funding for new surgical hubs, diagnostic scanners and new beds across the NHS estate to create more treatment space in emergency departments, reduce waiting times and help shift more care into the community.
• £100 million will be earmarked to carry out 200 GP estate upgrades across England, supporting improved use of existing buildings and space, boosting productivity and enabling delivery of more appointments.
• The Chancellor has focused on improving education as part of her first Budget, with an additional £4 billion for the sector, including £2.3 billion into the core schools' budget which increases per pupil spending in real terms.
• This will allow 100 project plans to begin delivery across England next year and begin to tackle the crumbling school and college buildings across the country. This paves the way for a long-term strategy to improve schools nationwide so that students can learn in safe, state-of-the-art facilities, tailored to the needs of 21st-century education.
• The Chancellor will provide £1.4 billion for the school rebuilding programme, including an increase of £550 million this year.

In addition to these commitments, this government is securing our borders and taking back our streets.

• The new Border Security Command will smash the organised criminal gangs by deploying 100 new NCA officers and increasing cooperation with European intelligence agencies and police forces.
• Smashing gangs and boosting the processing of asylum claims forms a crucial part of the government's plan to cut asylum support costs by more than £4bn over the next 2 years compared to the previous government's spending trajectory.
• The Home Office settlement will put us on track to start delivering the manifesto pledge to boost visible neighbourhood policing with 13,000 more neighbourhood officers and PCSOs.

Protecting working people and living standards

While fixing the inheritance requires tough decisions, the Chancellor has committed to protecting the living standards of working people. The decisions taken by the Chancellor to rebuild public finances enable the government to deliver on its pledge to not increase National Insurance, VAT, or Income Tax on working people, meaning they will not see higher taxes in their payslip. In addition:

• The Chancellor has made the decision to protect working people from being dragged into higher tax brackets by confirming that Income Tax and National Insurance Contributions thresholds will be unfrozen from 2028-29 onwards.
• The National Living Wage will increase from £11.44 to £12.21 an hour from April 2025, which means a pay boost for 3 million workers. The 6.7% increase – worth £1,400 a year for a full-time worker – is a significant move towards delivering a genuine living wage.  The National Minimum Wage for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour.
• The Chancellor is also protecting motorists by freezing fuel duty for one year and extending the temporary 5p cut to 22 March 2026 – a tax cut worth £3 billion. This will save the average car driver £59, vans £126 and Heavy Goods Vehicles £1,079 next year.
• To support the take-up of zero emission cars, Vehicle Excise Duty (VED) First Year Rates (FYRs) are changing from 2025-26. Rates for zero emission cars will be frozen at £10 until 2029-30 while rates for hybrid and petrol/diesel cars will rise from 1 April 2025.
• The weekly earnings limit for Carer's Allowance will be increased to 16 hours at the National Living Wage, worth an additional £45 a week from April next year, making over 60,000 carers eligible for support, and helping carers to balance work and caring responsibilities. This is the largest ever increase to the earnings limit and provides certainty for carers with a commitment that the earnings limit will increase with the National Living Wage in the future.
• To help ensure pensioners are protected in their retirement, the Budget will also confirm a 4.1% increase to the basic and new State Pension as well as the standard minimum guarantee for Pension Credit, from April next year.
• Over 12 million pensioners will benefit from this as the full new State Pension will rise from £221.20 to £230.25 a week, providing an additional £470 a year, while the full basic State Pension will increase from £169.50 to £176.45 per week, worth an extra £360 annually.
• The Pension Credit Standard Minimum Guarantee will also increase by 4.1% from April 2025, meaning an annual increase of £465 in 2025-26 in the single pensioner guarantee and £710 in the couple guarantee.
• The administration of Pension Credit and Housing Benefit will be brought together for new claimants from 2026. This is two years earlier than previously planned, and will support more people to receive the benefits that they are entitled to.
• In addition, working-age benefits and the Additional State Pension will rise by 1.7% in April 2025, in line with inflation. This increase will see around 5.7 million families on Universal Credit gain an average of £150 annually.

Rebuilding Britain

This government will not make a return to austerity and will instead boost investment to rebuild Britain by investing in the fabric of the country, as well as supporting the industries of the future. This will go towards rebuilding our schools, hospitals and roads, turbocharging the delivery of 1.5 million homes, and unlocking long-term economic growth.

This comes on top of action already taken under the government's growth mission including establishing the National Wealth Fund, publishing the Industrial Strategy green paper, and hosting the International Investment Summit.

• The government is exceeding its manifesto commitment to fix an extra 1 million potholes per year, with an additional £500 million for local road maintenance in 2025-26 – an almost 50% increase on the commitment made by the previous government for the current financial year.
• This brings the total amount dedicated to fixing the roads in England over the next year to nearly £1.6 billion.
• This government is growing day-to-day spending at an average of 2.0% per year in real terms between 2023-24 and 2029-30 to support public services.
• This government is boosting public investment by over £100 billion over the next five years whilst keeping debt on a downward path, with a greater focus on value for money and delivery to help unlock long-term growth.
• Capital investment will increase by £13 billion next year, taking total departmental capital spending to £131 billion in 2025-26. This includes increased investment in local roads maintenance and local transport, supporting everyday journeys, and driving growth in our regional towns and cities.
• The government is also making the reforms needed to deliver sustained growth in the long-term. These include ambitious planning reforms to remove barriers to growth, the development of a 10-year infrastructure strategy to be published alongside Phase 2 of the Spending Review, the publication shortly of the Get Britain Working White Paper, and the establishment of Skills England to ensure we have the highly-trained workforce needed to deliver economic growth.
• An extra £200 million will be given to Metro Mayors for local transport in 2025/26, bringing City Region Sustainable Transport Settlements to over £1.3 billion.
• The government is also announcing over £650 million for improving transport in towns, villages, and rural areas alongside our city regions.
• Single bus fares will be kept down at £3 until the end of 2025, as part of an over £1bn package to support bus services across the country.
• To fully harness its potential and foster a dynamic investment economy, the government is protecting record levels of government R&D investment with £20.4 billion allocated in 2025-26.
• To boost digital infrastructure in under-served areas across the UK and support growth in the digital and technology sectors, the government will invest over £500 million in Project Gigabit and the Shared Rural Network next year.
• A new housing package will include £500 million in new funding for the Affordable Homes Programme, increasing it to £3.1 billion, the biggest annual budget for affordable housing in over a decade. This brings total investment in housing supply to over £5 billion and supports the delivery of tens of thousands of new homes. 
• £3 billion of additional support will be provided to SMEs and the Build to Rent sector by expanding existing housing guarantee schemes to support a strong and diverse private housing market.
• The Budget also began the government's reform of business rates to help level the playing field for high streets across the country as from 2026-27 permanently lower tax rates for retail, hospitality and leisure properties will be introduced. This will be funded sustainably by introducing a higher multiplier for the most valuable properties, including distribution warehouses used by online giants.
• To support the transition, the Chancellor also announced a 40% relief for retail, hospitality and leisure, up to a cap of £110,000 per business. The small business multiplier will also be frozen next year to protect against inflationary increases. This support is worth almost £2.4 billion over the next five years. One third of business properties will continue to pay no business rates because of Small Business Rates Relief.

Repairing public finances

The Chancellor has made clear that, whilst protecting working people with measures to reduce the cost of living, there would be difficult decisions required on tax. The Budget will ask businesses and the wealthiest to pay their fair share while making taxes fairer. This will go directly towards fixing the foundations and funding public services such as the NHS and education.

• The rate of employer National Insurance will increase by 1.2 percentage points, to 15% from 6 April 2025. The Secondary Threshold – the level at which employers become liable to pay national insurance on each employee's salary – will reduce from £9,100 per year to £5,000 per year.
• The smallest businesses will be protected as the Employment Allowance will increase to £10,500 from £5,000 and be extended to all eligible employers by removing the £100,000 cap, allowing firms to employ up to four National Living Wage workers full time without paying employer National Insurance on their wages.
• Capital Gains Tax (CGT) will increase from 10% to 18% for those paying the lower rate, and 20% to 24% for those paying the higher rate. These new rates will match the residential property rates, which will unchanged at 18 for the lower rate and 24% for the higher rate.
• To encourage entrepreneurs to invest in their businesses, Business Asset Disposal Relief (BADR) will remain at 10% this year, before rising to 14% on 6 April 2025 and 18% from 6 April 2026-27.
• The OBR say changes to CGT will raise £2.5 billion by the end of the forecast and the UK will continue to have the lowest CGT rate of any European G7 country.
• Inheritance tax thresholds will be fixed at their current levels for a further two years until April 2030. More than 90% of estates each year will not pay inheritance tax. From April 2027 inherited pension pots will be subject to inheritance tax. This removes a distortion which has led to pensions being used as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement.
• From April 2026, agricultural property relief and business property relief will be reformed. The highest rate of relief will continue at 100% for the first £1 million of combined business and agricultural assets on top of the existing nil-rate bands, fully protecting the majority of businesses and farms. The rate of relief will reduce to 50% after the first £1 million. Reforms will affect the wealthiest 2,000 estates each year. Inheritance tax reforms are predicted by the OBR to raise £2 billion in total to support public services.

• The government will also uprate alcohol duty in line with RPI, except for most drinks in pubs. To support British pubs, and brewers, the government is reducing duty on qualifying draught products, which represent approximately 3 in 5 alcoholic drinks sold in pubs.
• This measure reduces duty bills by over £85 million a year, cutting duty on an average strength pint in a pub by a penny. The value of the relief available to small producers will also be increased to help smaller brewers and cidermakers.   

• From 2026-27 Air Passenger Duty (APD) rates for short and long-haul flights will be adjusted to partially account for previous high inflation. For economy passengers, this is only a £1 increase for domestic flights, £2 extra for short haul, and £12 more for long-haul flights, with children under the age of 16 remaining exempt from APD. APD for larger private jets will be increased by a further 50%. These changes will help align with the government's environmental objectives.

To further support the government's mission to fix the NHS, the Budget announces a package of measures that disincentivise activities that cause ill health, by:

• Renewing the tobacco duty escalator which increases all tobacco duty rates by RPI+2% plus an above escalator increase to hand rolling tobacco (totalling RPI+12%).  
• Introducing a new vaping duty at a flat rate of 22p/ml from October 2026, accompanied by a further one-off increase in tobacco duty to maintain financial incentive to choose vaping over smoking. 
• To help tackle obesity and other harms caused by high sugar intake, the Soft Drinks Industry Levy will increase over the next five years to account for inflation since it was last updated in 2018, and the duty will also rise in line with inflation every year going forward.

The government set out the next steps to deliver its tax manifesto commitments in the July Statement. Having consulted on the final policy details where appropriate, Budget delivers the government's manifesto commitments to raise revenue to pay for first steps, with reforms that are underpinned by fairness, and tackle tax avoidance by:  

• A new residence-based regime will replace the current non-dom regime from April 2025 and will be designed to attract investment and talent to the UK.
• Offshore trusts will no longer be able to be used to shelter assets from Inheritance Tax, and there will be transitional arrangements in place for people who have made plans based on current rules.
• The planned 50% reduction for foreign income in the first year of the new regime will be removed.
• Reforms to the non-dom regime will raise a total of £12.7 billion according to the OBR.

• The tax treatment of carried interest will be reformed by first increasing the Capital Gains Tax rates on carried interest to 32% and then, from April 2026, moving to a revised regime – with bespoke rules to reflect the characteristics of the reward.
• The Higher Rate for Additional Dwellings surcharge of Stamp Duty Land Tax will rise from 3 to 5%, providing those looking to move home, or purchase their first property, with a comparative advantage over second home buyers, landlords, and businesses purchasing residential property.
• To secure additional funding to help deliver commitments relating to education and young people, the government will introduce 20% VAT on education and boarding services provided for a charge by private schools from 1 January 2025. The government will also remove business rates charitable rate relief from private schools in England from April 2025. 
• Over the next five years HMRC, will look to close the UK's tax gap – the amount of uncollected tax owed to the UK – by bringing in an additional £6.5 billion per year. The revenue will go directly to funding UK public services and fixing the foundations of the economy.
• The package to close the tax gap will include overhauling HMRC's IT system to improve their debt management system to ensure tax debt enquiries can be dealt with faster, improving the productivity of the organisation. 5000 additional compliance staff will be recruited and 1,800 debt management staff will also be maintained and recruited. HMRC's services will be also digitised to make it easier and simpler for taxpayers to self-serve and manage their tax affairs.

The government has also published its Corporate Tax Roadmap alongside the Budget. This will offer the certainty that encourages investment and gives business the confidence to grow. The Roadmap includes commitments:

• to cap the headline rate of Corporation Tax at 25%, which is the lowest in the G7;
• to maintain our world leading capital allowances system (including permanent full expensing and the £1 million Annual Investment Allowance);
• to preserve the generosity of our R&D reliefs; and
• to develop a new process for increasing the tax certainty available in advance for major investments.

Strengthening the fiscal framework

The Chancellor has paved the way for growth while doubling down on fiscal responsibility by making reforms to the fiscal framework. This is based on two new fiscal rules: the stability rule and the investment rule.

• The stability rule will balance the current budget, so day-to-day costs are met by revenues.
• The investment rule will ensure that net financial debt is falling as a proportion of GDP. This rule keeps debt on a sustainable path whilst allowing the step change needed for investment.
• Both of these rules will be met two years early in 2027-28.
• This investment will be underpinned by clear guardrails to ensure it is high quality and well delivered.
• Our ten-year infrastructure strategy will provide industry a vision of the government's priorities and a credible delivery plan to encourage investment and supply chains.
• NISTA will be the central body that brings strategy and delivery together under one roof to implement this strategy working across Whitehall and industry.
• Further reforms will help deliver stability by holding Spending Reviews every two years, setting plans for at least three years to ensure public services are always planned and improve value for money. One major fiscal event per year will give families and businesses stability and certainty on tax and spending changes.
• The Fiscal Lock will ensure no future government can sideline the OBR again, and we are committing to improving the transparency and consistency of the spending information shared with the OBR.
• The government will also introduce new controls: that financial investments should by default target a return for the Exchequer that at least covers the government's cost of borrowing, that all large-scale financial transactions will be managed by expert bodies like the National Wealth Fund, and that the government will publish an annual report on the performance and value of its financial assets based on accounts audited by the National Audit Office.