REEVES TO END THE 2 CHILD CAP BENEFIT – Chancellor also expected to drag 9m people into higher tax rates by freezing thresholds
Rachel Reeves will unveil £15bn of extra benefits spending in this week’s Budget, funded by a tax raid on the middle classes. This is on top of the £40bn in taxes from her first budget, and this is despite all the talk about a Fiscal Black Hole. That’s the difference between the amount of money the Chancellor is expected to bring into the UK Treasury, versus the amount she expects to spend.
Despite this, the Chancellor has decided to spend and tax and will end the two-child benefit cap in its entirety and increase benefit payments by nearly 4%, while financing about-turns on planned winter fuel cuts and welfare reform.
To pay for it, she will drag an estimated nine million people into paying higher rates of income tax by freezing thresholds in a move critics argue breaks Labour’s election manifesto pledges, not to increase taxes on working people.
The annual cost of the four policies comes to £15bn, which, added to changes in Ms Reeves’s 2024 Budget, amounts to an extra £18bn to the Benefits Bill since Labour took power last year, according to recent analysis.
The plans have fuelled warnings that the Treasury is “vulnerable” to a market backlash unless the country’s public spending, which is being pushed up by welfare bills, is brought under control.
The markets are not impressed by the Chancellor’s budget, demonstrated by the cost of 30-year bond rules rising since the disaster of Liz Truss’s Budget in 2022 from 1% to well over 5% today. So far, Reeves has failed to reverse this damage. This is the cost of losing credibility with the Bond Market. The Office for Budget Responsibility (OBR) forecasts total debt interest alone to reach £111.2 billion in 2025/26.
However, Sir Keir Starmer is under pressure to keep backbench Labour MPs onside amid speculation about plots against his leadership, with fewer than one in five voters supporting his party in the polls.
