The Smorgasbord Budget

Headline Announcements:

• OBR: Taxes will reach an “all-time high of 38% of GDP in 2030-31.” A further £26 billion of tax rises, with an overall headroom of £22 billion.

• Personal tax and employer National Insurance contributions (NICs) thresholds frozen for three years from 2028, raising £8 billion. This will mean 780,000 more basic-rate taxpayers and 920,000 more higher-rate taxpayers.

• The two-child benefit limit will be scrapped next year. Welfare measures will also increase spending by £4.7 billion in 2026-27, rising to £9.3 billion in 2029-30.

• “Salary sacrifice” pension contributions above £2,000 will face National Insurance from April 2029.

• Pay-per-mile announced on electric cars. In 2028-29, the charge will be 3p per mile for battery electric cars and 15p per mile for plug-in hybrid cars, with the rate per mile increasing annually with CPI.

• Real GDP is forecast to grow by 1.5% on average over the forecast, 0.3 percentage points slower than projected in March, due to lower underlying productivity growth.

• Wider measures: Increase in gambling taxes, aimed at raising £1.1 billion, with remote gambling duty notably raised from 21 to 40 per cent. A new tax on properties worth more than £2 million from 2028. Reform to ISAs, with the £20,000 allowance remaining, but £8,000 designated exclusively for investment purposes for those under 65.

Analysis
After unveiling a £40 billion package of tax increases and expressing the hope that she would “never have to do a Budget like this again”, the Chancellor returned to the Despatch Box 12 months later facing remarkably similar pressures.

The Government remains constrained by the same trilemma: a manifesto promise not to increase the three main taxes, strained public services in need of additional funding, and a fiscal position that offers little room for manoeuvre. The result is a Budget based on a range of smaller interventions rather than a few key flagship measures, cumulatively unveiling a further £26 billion in tax rises. This eclectic approach has earned this Budget the label of “smorgasbord” - a collection of what the Chancellor hopes are carefully calibrated adjustments aimed at balancing the fiscal figures without breaching the Government’s primary political commitments.

The decision to remove the two-child welfare cap marks a significant strategic shift and follows ongoing internal pressure within the Parliamentary Labour Party. Rather embarrassingly for the Government, this was confirmed to the media in an early leak of the OBR response to the Budget, 35 minutes before the Chancellor took to the Despatch Box, confirming that today’s announcements will increase spending every year of this Parliament and by £11 billion in 2029-30. Markets are now likely to assess how this fits with the Government’s long-term spending plans, especially given the focus on avoiding a return to austerity.

The extension of the income tax threshold freeze until 2030 also highlights the delicate balancing act at the core of the Chancellor’s strategy. This should generate significant revenue for the Treasury, thus enabling the Chancellor to uphold her promise not to raise headline rates. The Government will likely face further pressure for ensuring that a greater share of the tax burden falls on “working people” over the medium term. However, this freeze has now become the main pillar of the Government’s medium-term tax policy, signalling a readiness to rely more on indirect measures than on explicit rate increases in order to protect its previous Manifesto commitment.

Many of the Budget’s other measures follow a similar pattern. Adjustments to high-value property charges, revisions to elements of salary sacrifice pensions, and targeted levies on specific consumer behaviours are all designed to generate revenue while minimising disruption to the wider tax system. These are not transformative on their own, but their combined effect is significant. They provide insight into the Chancellor’s preferred approach: incremental, specific, and based on the belief that a series of smaller levers can achieve meaningful fiscal results without provoking broad political resistance. Economically, they distribute the burden. Politically, they may help diffuse the impact.

The shift towards net zero continues to influence fiscal policy in intricate ways. The introduction of a pay-per-mile charge on electric vehicles may reflect an inevitable trend: as fuel duty revenues decline, alternative sources must be found. The measure, aimed at raising £1.4 billion, seeks to modernise the tax system while supporting the long-term transition to cleaner transport, but it also highlights the delicate balance the Government must maintain. Too little taxation risks creating an unsustainable revenue shortfall, while too much could hinder consumer adoption of new technologies. The Chancellor has tried to manage this by pairing the charge with extended EV grants, a strategy aimed at maintaining momentum while stabilising the tax system. Whether this balance endures will be a key test of the policy in the coming years.

Cost-of-living pressures continue to dominate the political landscape, and the Budget reflects this reality. The decision to reduce energy bills by removing green levies aims to provide visible relief at a time when households remain highly sensitive to utility costs. The rail fare freeze, the first in three decades, carries similar symbolism. It indicates attentiveness to everyday pressures even when fiscal space is limited. The increase in the National Living Wage, especially the larger uplift for younger workers, underscores the Government’s ongoing focus on making work pay. However, economists will watch closely for any effects on youth employment in a softer labour market.

Public spending more broadly remains the key issue. The Chancellor has reaffirmed that core services, especially the NHS, will receive additional support. However, the medium-term spending plan includes a significant reduction in 2029-30. While not unusual in fiscal forecasts, this creates a gap that will eventually need to be explained, especially to deliver on the NHS 10 Year Plan. It reflects a broader theme running through the Budget: the Chancellor is aiming to achieve stability and confidence today, while leaving future choices open.

Like its Swedish buffet namesake, the “Smorgasbord Budget” is defined more by the sum of its smaller components than by any single announcement. It is a Budget shaped by constraints rather than ideology, aiming to uphold political commitments while responding to economic pressures with carefully considered measures. However, the broader political backdrop is hard to ignore. Both the Chancellor and the Prime Minister continue to record fragile personal ratings, and Labour is preparing for challenging local elections next spring, where it is widely expected to lose in both Wales and Scotland. Whether the measures announced today give both the Chancellor and the Prime Minister the necessary impetus and headroom to last until then remains to be seen.