UK government set to unveil tax-raising budget amid economic strain

Britain’s centre-left Labour government is preparing to announce a tax-raising budget on Wednesday aimed at curbing national debt, strengthening public services, and restoring confidence among financial markets and voters. Prime Minister Keir Starmer has pledged to reduce NHS waiting times and ease the ongoing cost-of-living crisis, even as the hard-right Reform UK gains momentum.

Finance minister Rachel Reeves faces the challenge of supporting struggling households while convincing investors that government spending is under control. She has ruled out a return to austerity or any “reckless borrowing,” but closing a £20-billion ($26-billion) gap in public finances is expected to rely heavily on tax measures that could affect workers.

Ahead of the budget, Reeves has announced increases in the minimum wage and pensions, and freezes on rail fares and prescription charges. Still, many workers and small businesses fear the budget will add further pressure at a time when rising food prices, wage costs and declining consumer spending have hit hard.

The UK economy continues to struggle with a near five percent budget deficit, persistent inflation, rising unemployment and weak growth. The national budget watchdog may further downgrade growth forecasts, which could unsettle markets and raise borrowing costs.

Labour has faced criticism over slow economic progress since coming to power in July 2024 and for policy U-turns that have weakened the leadership’s credibility. Reports suggest Reeves has dropped plans to raise income tax, instead opting to freeze income tax thresholds again — a move that pushes more earners into higher tax brackets. Additional expected measures include higher levies on gambling, a mansion tax on luxury homes and a cap on pension benefits. The government is also expanding the sugar tax to cover pre-packaged milkshakes and other milk-based drinks.