Chancellor Rachel Reeves delivered her second Budget on 26 November, outlining measures that will result in the highest overall tax burden in UK history.
A prolonged freeze on tax thresholds—from income tax to inheritance tax—along with changes to the use of salary sacrifice for pension contributions and several other fiscal adjustments, is projected to increase Treasury revenues by up to £26 billion in 2029/30.
Although many might have expected a Labour Government to place a heavier tax burden on the nation’s wealthiest, the Chancellor acknowledged that “ordinary people will have to pay a little bit more.” That “little bit more” is set to push the UK’s tax-to-GDP ratio to a record 38% by 2030/31.
Which Measures Will Raise the Most Revenue?
The extension of the freeze on income tax and National Insurance thresholds represents the single largest revenue generator. Initially introduced in 2022 and due to end in 2028, the freeze has now been extended to 2031. The Office for Budget Responsibility (OBR) estimates that this extension alone will raise an additional £12 billion—despite Reeves previously warning that prolonging the freeze would negatively impact working households.
In an unprecedented incident, elements of the Budget were published online hours early due to an OBR error that made the documents temporarily accessible on its website.
Rachael Griffin, Tax and Financial Planning Specialist at Quilter, noted:
“The multi-year freeze on income tax thresholds has now been extended, locking households into one of the most powerful stealth tax rises in modern fiscal policy. Reeves has had to renege on what was her rabbit-out-of-the-hat moment at her maiden Budget… this must represent a breaking of the party’s manifesto pledge.”
A further £4.7 billion is expected to be raised in 2029/30 through changes to salary sacrifice rules for pension contributions. Under the new policy, National Insurance relief through salary sacrifice will be capped at £2,000 per year.
Who Will Be Most Affected by the Salary Sacrifice Changes?
The cap—effective from April 2029—will primarily affect private-sector employees who use salary sacrifice to make additional pension contributions. This practice is far less common in the public sector, explains Mike Ambery, RetirementSavings Director at Standard Life, part of Phoenix Group.
He commented:
“Salary sacrifice has long been one of the most efficient ways for workers to boost pension contributions, so limiting it will inevitably increase costs and reduce take-home pay for many. Adding complexity and reducing incentives risks undermining confidence in the system… It is vital that consideration is given to the timing of this change.”
Ambery also highlighted practical concerns, such as employer administration, payroll system updates, and complications for employees who move between jobs.
Other Key Measures Announced
High Value Council Tax Surcharge
A new surcharge will apply to properties valued above £2 million, with tiered charges as follows:
£2m–£2.5m: £2,500
£2.5m–£3.5m: £3,500
£3.5m–£5m: £5,000
£5m+ : £7,500
Additional Tax on Landlords
From April 2027, landlords will face an additional 2% tax on rental income. This will increase effective tax rates to:
22% for basic-rate taxpayers
42% for higher-rate taxpayers
47% for additional-rate taxpayers
Mileage Charges for Electric and Hybrid Vehicles
From 2028:
Electric vehicles will incur a 3p-per-mile charge
Plug-in hybrids will incur a 1.5p-per-mile charge
These new charges will significantly increase running costs, although fuel duty remains frozen for now.
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