Key measures in the 2025 Budget

Keir Starmer’s second budget (delivered 26 Nov 2025) combines new tax rises with higher welfare spending aimed at cutting child poverty. It raises an extra £26 bn of revenue (on top of £40 bn last year) through measures such as freezing income-tax and NIC thresholds, increasing taxes on dividends, savings and property incomes (including a new council-tax “mansion” surcharge on homes over £2 m) and phasing out certain reliefs. The government also introduced a VAT charge on advance payments to the Motability car scheme and other “luxury” tax changes to raise billions more.

Major welfare reforms were offset by higher spending. Most notably, the two‑child benefit cap is being abolished (from April 2026), a change estimated to lift about 450,000 children out of poverty at a cost of roughly £3 bn per year. Other benefit measures include extending the higher earnings threshold in Universal Credit, exempting disabled 16–19 year‑olds from certain benefit tests, uprating child-related benefits, and funding more NHS appointments and community health centres to reduce waiting lists. Pensioners see the State Pension and Pension Credit rise by 4.8% (in line with average earnings), and the minimum wage increases for young workers. The Chancellor also announced new spending on growth and public services: for example, a multibillion-pound investment package (including a new Lower Thames road crossing), a “Youth Guarantee” training scheme and billions for skills and housing. Energy support was extended – households would get around £150 off average bills – and fares frozen (fuel duty cut and rail fares froze). In summary, the Budget pairs targeted social spending with higher taxes on wealth and income from assets, aiming to protect families while keeping growth on track.

Historical UK budgets on child poverty

The focus on child poverty echoes earlier UK policy debates. Under the 1997–2010 Labour governments, child poverty fell sharply as tax credits, child benefits and spending on families were expanded. Gordon Brown famously pledged to halve child poverty by 2010, and official data showed rates dropped from about 27% in 1997 to 18% by 2010. However, academic reviews noted this progress depended heavily on big spending increases – about £18 bn a year more on families with children – and that inequality remained. After 2010, successive Conservative-led budgets reversed course. The 2010–15 “austerity” programmes cut or froze many benefits. Research at the time found that by 2014/15, welfare cuts had pushed hundreds of thousands more children into poverty. One study reported child poverty jumping by some 300,000 since 2012 (to roughly 29% of children after housing costs) as measures like the benefit cap and reduced uprating took effect. Coalition ministers had claimed to have cut poverty, but independent analyses noted those calculations omitted the impact of late-2013 cuts. Child poverty targets (enshrined in the 2010 Act) were eventually repealed in 2016. In short, earlier Labour budgets that expanded family benefits were credited with large poverty reductions, whereas later Conservative budgets that cut or froze benefits saw child poverty rise again.

International comparisons

Child poverty varies widely across rich countries. UNICEF’s latest analysis ranks the UK among the worst performers in the OECD/EU. Over 20% of UK children are poor, and UK poverty increased by ~20% from 2012–19 (while many countries cut rates). By contrast, Nordic countries have very low rates – Denmark’s is under 10% – due to universal family policies. OECD researchers note that countries reducing child poverty fastest generally combine broad, unconditional child benefits with strong public services and high taxation of wealth. For example, Poland and Slovenia sharply cut poverty in the 2010s through targeted cash benefits and labour-market supports. In the USA, a temporary expansion of the Child Tax Credit in 2021 drove child poverty to a record low (~5%), demonstrating how large periodic payments (and full refundability) can have an immediate effect. Canada’s Child Benefit (roughly C$4,000 per child per year for low-income families) is another model – it was explicitly designed to halve Canadian child poverty by 2030. By contrast, UK child-support measures have been more modest or conditional (the old two-child cap, stricter eligibility). Analyses suggest the UK could learn from these examples by shifting towards more universal or larger child allowances and linking benefits to need: indeed, modelling shows a Canada-style child benefit would roughly halve child poverty even in the US.

Political responses

Reactions fell along familiar party lines. Labour emphasised fairness and child welfare. Prime Minister Starmer and Chancellor Reeves said the tax rises were “necessary” to fund the NHS and schools and to protect families. Starmer insisted no manifesto promises were broken and highlighted that ending the two-child cap was a “long-standing ambition” of his, saying “we don’t want children to pay the price”. Many Labour MPs called the Budget “fair and necessary” – for example, Labour backbencher Helena Dollimore praised its funding of public services and delay of unfunded borrowing. Portsmouth Labour MPs welcomed the measures: South Portsmouth’s Stephen Morgan noted that freezing bills and boosting child support would benefit his constituents, and North Portsmouth’s Amanda Martin said scrapping the cap would “lift kids out of poverty”.

The Conservative opposition attacked the tax rise vigorously. Senior Tory MPs denounced the package as a “£26 billion tax raid” on workers to fund higher welfare bills. They accused Labour of returning to old high-tax policies and warned that hard-working families would be “hit” by frozen allowances and higher levies (e.g. on dividends and properties). Tory spokesmen also argued that unchecked spending risks inflation or economic weakness.

The Liberal Democrats struck a mixed tone. Lib Dem leader Ed Davey called the Budget “botched” and criticised Labour for not doing more to tackle growth or energy prices. However, Lib Dems broadly supported ending the two-child cap, which they had long campaigned for. Oxford MP Layla Moran said many constituents would “feel the pinch” from the freeze in tax thresholds, reflecting Lib Dem concerns for middle‑income households.

The Scottish National Party (SNP) welcomed the UK-wide abolition of the cap (which mirrors a similar Scottish policy) but warned of new costs. Scotland’s Finance Secretary John Swinney thanked Westminster for the change but noted that the Budget’s higher employer NICs would cost the Scottish budget an extra ~£400 million – outweighing the modest (≈£150 m) extra grant Scotland gets from scrapping the cap. In Northern Ireland, unionist and nationalist leaders differed: DUP figures baulked at extra NI tax burdens, while Sinn Féin and the Northern Ireland Executive likely applauded the poverty measures (though detailed comments have not been widely reported). Populist Reform UK (Farage’s party) had urged scrapping the cap as a pro–family and backed Reeves’ decision, though it opposed many other tax rises. Green Party activists condemned the Budget for not doing enough on inequality, arguing it still left too many children behind and needed even higher taxes on wealth.