British Chancellor Rachel Reeves will unveil the 2026 Budget today, a moment that analysts say could define her economic credibility amid rising public frustration, slowing growth, and intensifying demands for higher public spending.
British media report that the budget will raise both salaries and taxes next year, including a significant bump in minimum wages and the introduction of a new sugar tax on several drinks.
At the same time, Reeves is preparing to announce tens of billions of pounds in new tax increases to stabilize the country’s strained public finances.
Minimum wage increases expected
According to UK media, Reeves is set to approve new minimum wage rates that will take effect next year:
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Workers over 21: £12.71 per hour
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Workers aged 18 to 20: £10.85 per hour
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Workers aged 16 to 17: £8 per hour
Officials say the wage hikes aim to ease cost-of-living pressures while keeping pace with inflation and rising living costs.
Those earning up to £12,570 per year will remain exempt from income tax — a threshold that will not change in the new budget.
Sugar tax to cover milkshakes, canned milk, sweetened drinks
British media also report that the government will apply a sugar tax to milkshakes, canned milk products, and sweetened beverages. The move is expected to support public health goals while raising additional government revenue.
Tens of billions in new tax measures
Beyond wage increases and sector-specific taxes, Reeves is likely to introduce £20–£30 billion in broad tax hikes, economists say. This comes just over a year after she approved £40 billion in tax increases — measures she had previously described as a one-off necessity.
However, a weaker economic outlook and higher borrowing costs have forced her back to the revenue side of the ledger.
Reeves has acknowledged public frustration but insists she is taking “fair and necessary choices” to fix long-standing structural problems.
“I know that people feel frustrated at the pace of change or angry at the unfairness in our economy,” she said ahead of the budget speech. She cited the effects of austerity, a chaotic Brexit, and the pandemic as deeper than previously understood.
Slow growth, rising expenses
The UK is on track for the second-strongest growth in the G7 this year — 1.3%, according to the IMF — but this remains far below the pre-crisis norm of 2.5%.
Economists warn that sluggish growth, high defence spending, and an ageing population could undermine Reeves’s plans to balance day-to-day spending with tax revenues by 2030.
Evercore analysts Krishna Guha and Marco Casiraghi said the budget risks failing to eliminate fears of future tax hikes, which they say are already weighing on investment. They added that a weak budget could intensify speculation surrounding Prime Minister Keir Starmer’s leadership, despite Labour’s landslide 2024 victory.
Lower forecasts and high borrowing costs
Reeves’s previous fiscal plan is now threatened by what is expected to be a downgrade of Britain’s economic outlook from government forecasters who have historically overestimated productivity growth. Combined with higher borrowing costs, Reeves faces missing her 2030 target without deeper fiscal tightening.
Reports suggest she will extend the freeze on income tax thresholds — a move she previously said she would avoid due to its impact on household budgets. More workers are expected to be pulled into higher tax brackets as a result.
Other expected revenue-raising steps include:
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Higher taxes on expensive property owners
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Increased taxes on gambling
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A new mileage charge for electric vehicle drivers
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Reduced generosity in pension incentives
Analysts say Reeves must strike a careful balance to maintain credibility with bond investors. The Bank of England reports that UK borrowing costs are now the highest in the G7, with 10-year bond yields at 4.53%, compared with 2.67% in Germany and 3.41% in France.
Labour MPs press for welfare reforms
Reeves also faces internal political pressure. Labour lawmakers have demanded the removal of the two-child welfare cap, which would add around £3 billion annually to government spending.
Investors, however, stress the need for a credible plan.
“For the government to retain fiscal credibility, it must deliver a material reduction in the fiscal deficit over the next two years,” said Andrew Wishart of Berenberg Bank.
Mahmood Pradhan, former IMF deputy director for Europe, warned that investor confidence in the Office for Budget Responsibility’s forecasts — which underpin Reeves’s strategy — must hold firm to avoid a “vicious spiral” of higher yields and rising debt.
High stakes as Reeves seeks delicate balance
Reeves insists she will avoid a return to austerity while keeping public spending under control. She says the budget will help ease living costs, reduce hospital waiting lists, and continue stabilizing the economy after years of volatility.
But with increasing debt, slowing productivity, ambitious social demands, and the need to reassure markets, today’s budget could be one of the most consequential in years — for Reeves, for the Labour government, and for Britain’s economic future.
