UK Budget 2025: Rachel Reeves’ key changes explained
Budget day came with a teachable twist. Rachel Reeves delivered her second Budget on Wednesday 26 November 2025, moments after the Office for Budget Responsibility (OBR) accidentally put its economic forecast online and then apologised. We’ll walk you through what changed, why it matters, and when it starts.
Quick refresher for class: a UK Budget is the government’s yearly tax-and-spend plan. The OBR is the independent referee that checks the numbers and publishes a forecast. Pre-briefings and leaks can hint at policy, but the legal changes arrive via the Budget documents and the Finance Bill. Read the source, not just the headlines.
Personal taxes first. The government will keep income tax and National Insurance thresholds at their current cash levels for three more years, from April 2028 to April 2031. That’s fiscal drag: as pay rises, more of your income falls into tax. The OBR’s early-release figures suggest the freeze pulls hundreds of thousands into higher bands by 2029/30. If you’re teaching this, compare a 2025 payslip with a 2030 one to spot the shift.
Income from assets will be taxed more. Dividend and savings tax rates each rise by two percentage points on a phased timetable, and property income gets its own higher set of rates. ISAs still shelter interest and dividends inside the wrapper, which is why teachers often tell students to learn the difference between ‘in an ISA’ and ‘outside an ISA’.
High-value homes will face a new surcharge. From April 2028, owners of properties worth £2 million or more in England will pay an annual charge, starting at £2,500 and rising with value. Fewer than 1% of properties are expected to be caught, but it’s an important case study in how council tax can be made more progressive.
Pensions and pay packets connect here too. From April 2029, National Insurance relief on pension salary sacrifice will be capped at £2,000 per person each year. Most basic-rate taxpayers who use salary sacrifice won’t be affected, but higher earners paying in larger sums will see more NI taken. This is a good moment to revise the difference between tax relief and NI relief.
Motoring is changing. A mileage-based charge for electric and plug‑in hybrid cars arrives in April 2028. The government says an average EV driver would pay about £240 a year, with lower rates for plug‑in hybrids, and no tracking of where or when you drive. Petrol and diesel drivers keep paying fuel duty as now.
Fuel duty stays frozen a bit longer, then unwinds. The 5p cut is extended to 31 August 2026 and then reversed in three steps between September 2026 and March 2027. If you’re modelling household budgets, build in those dates so students can see how forecasts meet real-life bills.
On living costs, ministers highlight three visible moves for 2026–27: around £150 off average household energy bills, a one‑year freeze on regulated rail fares in England, and a one‑year freeze on NHS prescription charges. Use this as a case study in how targeted price measures feed into inflation.
Welfare policy shifts too. The two‑child limit in Universal Credit is being scrapped, with government analysis saying this could lift around 450,000 children out of poverty. In the classroom, you can discuss trade‑offs: higher welfare costs versus the social and long‑term economic gains of lower child poverty.
Other revenue raisers arrive in the background: remote gaming taxes increase (with bingo duty abolished), tobacco duty goes up, and the higher Air Passenger Duty rate will apply to more private jets. These are useful examples of how governments tweak many small taxes to add up to big totals.
How big are the totals? The package of tax rises is set to raise roughly £26 billion a year by 2029/30, while the OBR says the Chancellor meets her debt‑rule ‘headroom’ by about £22 billion late in the forecast. Remember: forecasts can change, so treat these as estimates, not guarantees.
What this means for you in plain English. If you earn a steady salary, the threshold freeze means you could pay more tax in future as your pay creeps up. If you rely on income from shares or savings outside an ISA, your bill will rise when the new rates kick in. If you own an EV, plan for a mileage charge from 2028. If you live in a £2m+ home, budget for an annual surcharge from 2028. These are phased changes, so dates matter.
If you teach this topic, try a simple exercise: give students three fictional households-a renter on £28,000, a homeowner with a £2.2m property, and an EV‑driving family-and ask them to map which measures hit or help them in 2026, 2028 and 2029. This builds media literacy around timelines, not just headlines.
Finally, a quick media‑literacy note. The OBR’s premature publication changed the running order of the day but not the legal status of measures. When news breaks early, always go back to primary documents-the Budget paper, the OBR forecast and the Finance Bill-to check what is confirmed, when it starts and who is affected.