Budget 2025 live: Rachel Reeves delivers budget as OBR apologises for leaking details

In a dramatic and unprecedented turn of events, the UK's annual Budget statement by Chancellor Rachel Reeves was largely pre-empted by the accidental early release of the Office for Budget Responsibility (OBR) report. The document, published "in error" on the OBR's website, laid bare the government's key fiscal decisions and updated economic forecasts, sparking immediate controversy and setting the stage for a highly charged parliamentary session.

OBR Leak Unveils Major Fiscal Shifts

The premature release of the OBR's Economic and Fiscal Outlook provided a detailed glimpse into the government's financial strategy, revealing significant changes that will impact millions of Britons. Chancellor Rachel Reeves later expressed her "deep disappointment" at the "serious error," while shadow ministers, including Mel Stride, even suggested the leak could constitute a criminal offence, calling for an urgent inquiry.

Pension Contributions Face National Insurance Changes

One of the most impactful revelations from the OBR document concerned salary-sacrificed pension contributions. From April 2029, contributions exceeding an annual threshold of £2,000 will no longer be exempt from National Insurance Contributions (NICs). This means that any amount above this threshold, previously shielded from NICs through salary sacrifice schemes, will now be treated as ordinary employee pension contributions, becoming subject to both employer and employee National Insurance.

Salary sacrifice schemes have long been a popular and tax-efficient way for employees to boost their pension savings, offering savings on both income tax and National Insurance for the employee, and employer NICs for the company. The OBR estimates this policy shift will generate substantial revenue, projecting an increase of £4.7 billion in NICs in 2029/30 and £2.6 billion in 2030/31. The costing assumes a behavioural response, with many contributions either moving to standard pension schemes or continuing under the new tax arrangements within salary sacrifice.

Experts suggest this move aims to level the playing field and capture additional revenue, but it could significantly alter the attractiveness of salary sacrifice for higher earners and impact long-term retirement planning for many. It raises questions about how employers will adapt their benefit structures and how employees will respond to the reduced tax efficiency of larger pension contributions.

ISA Reforms to Boost UK Investment

Another significant policy announced was the reform of Individual Savings Accounts (ISAs), aimed at stimulating retail investment in UK stocks and shares. While the overall £20,000 annual ISA allowance will be maintained, from April 2027, £8,000 of this will be specifically designated for investment in stocks and shares. This change seeks to address the UK's historically low rates of retail investment compared to other G7 nations, encouraging savers to consider equity markets over cash savings.

The Chancellor highlighted that many individuals could achieve better returns by investing in stocks and shares rather than solely relying on cash ISAs. A notable concession is that over-65s will retain the full cash allowance, acknowledging their potentially different financial priorities. To facilitate this shift, major financial institutions, including Hargreaves Lansdown, HSBC, Lloyds, Vanguard, and Barclays, have committed to launching new online hubs to guide savers towards investment opportunities within Britain.

This initiative represents a strategic effort to channel domestic capital into the UK economy, potentially boosting liquidity and growth for listed companies. However, it also places a greater onus on financial literacy and guidance to ensure savers make informed investment decisions, particularly given the inherent risks associated with stock market investments.

New High-Value Council Tax Surcharge Introduced

In a move to increase revenue from high-value properties, the Budget introduces a new council tax surcharge targeting homes valued over £2 million. This progressive surcharge will be structured across four price bands, with charges ranging from £2,500 for properties in the £2 million to £2.5 million band, up to £7,500 for those valued at £5 million or more. This measure is estimated to raise £400 million in 2029-30, contributing to the government's overall revenue goals.

This policy reflects an ongoing debate about wealth taxation and the fairness of property levies. While it targets the wealthiest homeowners, it could face criticism regarding its impact on property liquidity and the potential for unintended consequences in the high-end housing market.

Tax Thresholds Frozen, Dividend and Savings Taxes Rise

Further revenue generation will come from extending the freeze on personal tax thresholds for income tax, including the personal allowance, higher-rate, and additional-rate thresholds, until 2030-31. This "fiscal drag" effect means that as wages rise with inflation, more people will be pulled into higher tax brackets or start paying tax, significantly increasing the overall tax take. The OBR projects this will raise £8.3 billion in 2029-30 alone.

Additionally, tax rates on dividends, property income, and savings income will increase by 2 percentage points, expected to raise an additional £2.1 billion. These combined measures underscore a strategy to increase the overall tax burden, with the OBR noting that "around three-quarters of the planned reduction in borrowing over the next five years now comes from tax increases," pushing the tax take to an all-time high of 38% of GDP by 2030-31.

Economic Outlook: Downgraded Growth and Productivity

The OBR's economic forecasts painted a challenging picture for the UK economy, revising down growth projections for the coming years. While growth for the current year (2025) was revised up slightly to 1.5% from 1%, the outlook for subsequent years is less optimistic:

• 2026: 1.4% (down from 1.9%)
• 2027: 1.5% (down from 1.8%)
• 2028: 1.5% (down from 1.7%)
• 2029: 1.5% (down from 1.8%)
• 2030: 1.5% (new forecast)

These figures indicate that real GDP is forecast to grow by an average of 1.5% over the forecast period, 0.3 percentage points slower than projected in March. This sustained period of growth below the UK's pre-financial crisis trend rate is a significant blow to the government's ambition to achieve the highest sustained growth in the G7.

Productivity Growth Stagnates

A key factor behind the downgraded growth forecasts is a significant reduction in the OBR's medium-term productivity growth forecast, cut to 1.0% from the 1.3% guidance in March. The OBR noted that "the UK’s productivity performance has undershot our forecasts, despite several substantial downgrades since 2010, as a significant rebound from recent negative shocks has not materialised."

Chancellor Reeves attributed this downgraded productivity to "long-term problems, including Brexit," labelling the forecasts as "the Tories' legacy." Productivity growth is crucial for sustainable economic improvement and higher living standards, and its continued stagnation poses a fundamental challenge to the UK's long-term prosperity.

Fiscal Headroom Doubles Amidst Falling Borrowing

Despite the challenging economic backdrop, the OBR report indicated that the Chancellor has managed to more than double her fiscal headroom to approximately £22 billion, up from £9.9 billion previously. This increased margin provides greater flexibility against unforeseen economic shocks and helps meet the government's fiscal rule to balance the budget by 2029-30.

Borrowing is projected to fall in every year of the forecast, decreasing from 4.5% of GDP in 2025-26 to 1.9% in 2030-31. Debt as a proportion of GDP is also expected to fall by the end of the forecast period, albeit rising from 95% this year to 96% by the end of the decade.

Broader Budget Measures and Political Fallout

Beyond the major fiscal adjustments, the Budget included a range of other policy announcements and was delivered against a backdrop of political tension and public protest.

Devolved Funding and Regional Investment

The Chancellor announced significant devolution of funding, with £13 billion allocated to be spent by seven mayors across the country. Specific initiatives were highlighted for Cornwall, Leeds, Peterborough, and Darlington. Grants were also confirmed for Northern Ireland, Scotland, and Wales, with the latter set to host two new investment zones focusing on AI and the construction of small nuclear reactors in Anglesey.

Support for Businesses and Infrastructure

Measures to support businesses included cuts to electricity prices for many manufacturers, a forthcoming report on the nuclear industry with implementation plans within three months, and changes to government procurement policies to "buy British when it is essential for national security." Businesses listing in the UK will also benefit from a three-year stamp duty exemption under new UK listings relief.

Infrastructure investment remains a priority, with commitments to the Lower Thames Crossing and continued support for Northern Powerhouse Rail.

Cost of Living and Social Measures

Several pre-announced measures aimed at alleviating the cost of living crisis were reiterated. These include:

• Freezing rail fares for the first time in 30 years.
• Increasing the National Living Wage (NLW) to £12.71 per hour for eligible workers aged 21 and over from April 2026, a 4.1% rise.
• Boosting the National Minimum Wage (NMW) for 18-20 year olds by 8.5% to £10.85 per hour, and for 16-17 year olds and apprentices by 6% to £8 per hour.
• Extending free breakfast clubs, free childcare, and free school meals.
• Freezing prescription charge costs.
• Lifting the two-child limit in universal credit.

While welcomed by many, the Resolution Foundation thinktank cautioned that the steep increases in minimum wage rates for younger workers "risk causing more harm than good if they put firms off hiring and push up NEET [not in employment, education or training] rates."

Farmers' Protest and Political Scrutiny

Budget day was also marked by a protest from farmers in Whitehall, defying police restrictions on bringing agricultural machinery. Farmers, protesting last year's decision to extend inheritance tax to farms, were met with arrests, prompting Reform UK leader Nigel Farage to offer legal support. The incident highlighted the broader discontent in certain sectors.

Politically, the Budget was framed by Chancellor Reeves as a series of "fair and necessary choices" to deliver change, stabilize the economy, and drive growth, avoiding both austerity and "reckless borrowing." However, the unprecedented OBR leak ensured that the focus remained as much on the process as on the policies themselves, adding an unexpected layer of drama to an already high-stakes fiscal event.