Labour's first budget: big promises, but bigger questions remain

Rachel Reeves' £40bn tax hike has raised eyebrows and hopes alike. Zoë Grünewald unpacks what this budget means for voters and tells us about the new governing party

Today, Chancellor Rachel Reeves unveiled Labour’s first budget in almost 15 years, setting out the party's ambitious spending plans. If New Labour’s mantra was “education, education, education”, Reeves and Starmer’s Labour have focused firmly on “investment, investment, investment.” Central to this commitment is a £40 billion package of tax increases—marking the largest revenue-raising measure in a generation, surpassing the hikes by Rishi Sunak in 2022, George Osborne in 2010, and Gordon Brown in 1997. These measures, Labour argues, are essential to repair the damage inflicted by 15 years of Conservative rule.

Labour’s approach to these tax rises reveals much about how the party seeks to position itself. Reeves announced a rise in the national minimum wage, no new taxes on working people, and no further extension of the freezes on income tax and National Insurance thresholds. This budget is for the workers.

Instead, the bulk of new revenue comes from an increase in employer National Insurance contributions. Explaining her decision, Reeves argued, “Successful businesses depend on successful schools; healthy businesses depend on a healthy NHS… If the party opposite opposes this choice, then they are choosing more austerity, more chaos, more instability.”

Additional revenue will come from further, targeted reforms: the capital gains tax (CGT) rate will rise, with the lower rate increasing from 10% to 18% and the higher rate from 20% to 24%. Labour has also announced reforms to inheritance tax and imposed taxes on private jets, as well as scrapping non-dom status and levying VAT on private schools.

Yet with these tax changes, questions remain about where Labour’s spending will be directed. The party has pledged an end to austerity, modifying its fiscal rules to promise an additional £100 billion over five years in capital spending. Key allocations include £6.7 billion for the Department of Education (an eye-popping 19 per cent real-terms increase), £5 billion for housing, and perhaps most significantly, £22.6 billion for health day to spending, alongside a £3.1 billion boost to the NHS's capital budget.

Still, there are some areas where the budget falls short. The two-child benefit cap remains in place, as does the reduction in the winter fuel allowance, sparking concern for vulnerable families. Meanwhile, Reeves confirmed bus fares would increase by 50 per cent and proceeding with the Tories proposed welfare reforms remain a point of contention for poverty and disability campaigners.

Then there were two elephants in the room: social care and Brexit. The former, the Lib Dems argue, is vital for future-proofing the NHS. The latter, the Office for Budget Responsibility argues, will lead to a 4 per cent reduction in the potential productivity of the UK economy. If the budget is anything to go by, Labour has saved little political headspace for either.

Here at The Lead UK, we’ll be breaking down the budget in detail, with insights from policy experts, campaigners, and our editorial team to unpack what these changes mean for our readers nationwide. Subscribe to The Lead UK to catch our in-depth analysis in Thursday and Saturday’s newsletters.