UK Budget 2025: leaks, tax thresholds and two-child cap

Here’s the state of play as you head into Budget week. Transport Secretary Heidi Alexander said Budget leaks haven’t damaged the economy, pushing back on former Bank of England economist Andy Haldane’s warning that months of speculation have caused a “fiscal fandango” and stalled decisions. The Budget is due on Wednesday 26 November.

What counts as a leak? In the days before a Budget, governments often float ideas to test reaction or prepare the ground. That practice is under scrutiny: the Commons Speaker has criticised pre-briefing as “hokey cokey”, and the Conservatives have asked the Treasury’s top official to examine whether unauthorised disclosures took place.

So, have the leaks hurt growth? Haldane argues the speculation has been costly, saying it’s left businesses and households hesitant. Alexander’s reply is that forecasts have shifted and there is always chatter before Budgets. Both things can be true: uncertainty can slow spending, and ministers also try to avoid market shocks.

Let’s separate tax rates from tax thresholds. Rates are the 20%, 40% and 45% charges. Thresholds are the income points where those rates start. If thresholds are frozen while wages rise, more of your pay falls into tax or a higher band. Economists call this “fiscal drag”. What this means: you can pay more tax even if the rates don’t change.

Where the chancellor stands right now. After weeks of briefings about possible rate rises, Rachel Reeves has stepped back from increasing the headline income tax rates and has called recent leaks “not acceptable”. Expect the final package to lean on smaller measures rather than big rate changes.

What a freeze does in numbers. The Office for Budget Responsibility says frozen thresholds increase receipts and pull millions more people into paying higher rates by 2028–29. Today the personal allowance remains £12,570 and the higher‑rate threshold £50,270; had they moved with prices, they would be higher and fewer people would be dragged up.

A quick classroom example. Amira earns £28,000 and gets a 5% pay rise to £29,400. With thresholds frozen, most of that extra £1,400 is taxed at 20%, so roughly £280 goes to income tax. If the allowance rose with inflation, a small slice of that rise would likely stay tax‑free. The lesson: a freeze makes pay rises feel thinner.

An example at the top end. Jordan moves from £99,500 to £101,500. Between £100,000 and £125,140 the personal allowance is tapered away, creating an effective 60% marginal rate once you combine the 40% rate with the lost allowance. That’s why that £2,000 rise can feel much smaller in the pocket.

Now, the two‑child benefit cap in plain terms. Since 2017, most families can only claim Universal Credit or tax credits for their first two children. Around 1.6–1.7 million children are affected, and charities say the policy has pushed hundreds of thousands into poverty. What this means: any change here directly moves child poverty numbers.

Will the cap be scrapped on Wednesday? Reports say Reeves is preparing to lift it, while earlier briefings suggested the Treasury worried about a £3–3.5bn annual cost. Analysts at the Resolution Foundation add that partial options-like a three‑child limit or exemptions-lift far fewer children out of poverty than full repeal. Treat it as unconfirmed until the statement.

One confirmed move: rail fares in England will be frozen in 2026 for the first time in 30 years, covering season tickets and many peak and off‑peak returns. Ministers say the freeze will save commuters hundreds of pounds and help ease living‑cost pressures, with the policy set out ahead of Budget day.

EV drivers are part of the story too. The Budget is set to top up the Electric Car Grant by about £1.3bn and add £200m for chargers; at the same time, ministers are weighing a pay‑per‑mile system for EVs to replace lost fuel duty. Alexander didn’t deny that on the BBC, saying a fair system is needed.

What it means for you this week. Keep the timeline clear: the Budget is on Wednesday 26 November, after which MPs will scrutinise the Finance Bill that turns proposals into law. For revision or class, focus on two tools governments use to raise money-headline rates and thresholds-and practise with worked examples like Amira and Jordan.

A media‑literacy note before the big day. Pre‑Budget briefings can be deliberate or unauthorised. When you see a “scoop”, ask who benefits from it being public now, whether a minister has confirmed it on the record, and whether reputable outlets are reporting the same facts. Until the red box opens, specifics are still subject to change.