British Finance Minister Rachel Reeves spent Thursday staunchly defending her latest budget, which introduces £26 billion in tax increases on top of the £40 billion announced last year. She faced intense political scrutiny regarding the resulting tax burden—projected to be the highest since World War Two—and accusations that she is reverting the Labour Party to a "high-tax, high-spend" model, largely to fund expanded welfare programs.
The Fiscal Burden and Welfare Commitment
The primary source of contention is Reeves' decision to end restrictions on child benefits for low-income families with more than two children. While popular among most Labour lawmakers, the move has been met with limited support in public opinion polls. Reeves countered the criticism by stressing the moral and societal cost of the current policy, stating, "I don't think children should be punished by this pernicious policy any longer."
The scale of the fiscal changes is historic: the Resolution Foundation think tank labelled the combined budget measures for 2024 and 2025 as the largest back-to-back tax increases ever imposed by a newly elected government.
Political Backlash and Justification
The increased welfare spending drew sharp attacks from the opposition Conservative Party, which accused Reeves of transferring funds from workers to appease internal party dissent. Reeves pushed back, highlighting that 60% of the families set to benefit from the welfare changes have at least one working parent but still struggle to afford basic necessities.
Addressing widespread media criticism, Reeves denied that the tax increases were solely to fund welfare. Instead, she primarily attributed the necessity of the tax hikes to a significant downgrade in Britain's productivity outlook by the Office for Budget Responsibility (OBR), which she is obligated to follow.
"I have to operate within the forecasts that I'm presented with," Reeves told the BBC, emphasizing that her decisions were constrained by years of past underperformance in the economy.
OBR Forecasts and Timing Concerns
The OBR assessment revealed key fiscal pressures:
Higher Welfare Costs: Annual welfare spending is now forecast to be £16 billion higher by the end of the decade than previously planned. This includes a £7 billion cost from a July government U-turn, where Prime Minister Keir Starmer reversed plans to tighten benefit claims for people with health conditions.
Revenue Downgrade: The OBR's lower productivity forecast reduced projected tax revenues by £16 billion, although this was partly balanced by a £10 billion forecast boost from faster wage growth.
Fiscal Buffer: Despite the volatility, the OBR confirmed that Reeves’ buffer for meeting her medium-term fiscal targets increased to £22 billion, more than double her previous cushion.
Analysts noted a critical timing issue: higher public spending will take effect quickly, while the majority of the tax increases are scheduled for later years. Helen Miller of the Institute for Fiscal Studies described it as a "borrow-to-spend budget in the short term," raising questions about the government's willingness to maintain the tax hikes leading up to the 2029 election.
In total, scrapping the two-child benefit cap is estimated to cost £3 billion a year and is projected to lift 450,000 children out of poverty. While facing headwinds, Reeves expressed confidence in future economic policy, promising to take further measures—including new trade deals and infrastructure plans—to speed up growth that the current OBR projections do not yet factor in.
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