The UK economy heading into this Budget was not in great shape. Inflation was above target, productivity had flatlined since 2008, debt was nearing 97% of GDP, and millions of households were still reeling from the worst cost-of-living crisis in a generation. Against that backdrop, Chancellor Reeves chose to raise taxes by £26.6bn, cut borrowing, and target spending at the poorest families. Was it the right call? The honest answer: yes in parts. But with some serious catches.

Why this Budget might just work

Firstly, the most urgent problem in 2025 is inflation reducing the real wages of workers. The Budget tackles this directly: freezing fuel duty, absorbing 75% of the legacy Renewables Obligation cost, and expanding the Warm Home Discount to 6 million households. The OBR estimates these measures will cut CPI by 0.4 % in 2026–27 (the largest single inflation reduction from government policy outside a crisis). This reduces poverty as it eases pressure on energy bills and fuel. Additionally, the disinflationary impact might provide justification for the Bank of England to lower interest rates, able to reach the 2% target faster. 

Secondly, the removal of the two-child benefit cap from April 2026 is the Budget's standout measure. Previously, families with three or more children received no additional Universal Credit (a policy the Joseph Rowntree Foundation linked directly to rising child poverty). Scrapping it costs £3.2bn a year by 2030/31, but it has positive outcomes. Child poverty currently cost the UK an estimated £39 bn per year – by improving living standards and supporting child development the policy is expected to reduce long term demand on public services. Additionally, families will be forced to work hence this scheme helps ease financial pressures that act as a barrier to employment allowing parents to manage child-rearing costs. 

Thirdly, reducing government borrowing from £150bn in 2024/25 to £72bn by 2030/31 is a huge cut down to the government revenue but forces basic fiscal responsibility. This means that the government prevents a “Snowball Effect” (where debt servicing get unsustainable) hence aiding to stabilise the budget deficit and lowering the debt-to-GDP ratio. Lower and maintainable debt eases the cost of government borrowing reducing the “Crowding Out” Effect causing lower borrowing costs for businesses, attracting private investment. Additionally, by reducing the deficit during relatively calm economic times, the government replenishes its fiscal space which allows the government to be prepared for future loss of market confidence (as suggested by the conflicts of war around the world)

Where the Budget falls short 

However, Budget's biggest problem its largest revenue measure (income taxes) raising £32bn a year,  is freezing income tax and NI thresholds until 2031. This is fiscal drag (often referred to as the “stealth tax”). As wages rise with inflation, workers are pushed into higher tax bands even though their real spending power hasn't increased. The IFS estimates around one million people who currently pay no income tax will start doing so by 2031, including part-time workers on just 18 hours a week at minimum wage. That is deeply regressive: it hits the lower and middle earners that the spending measures are supposed to help. Furthermore, this impacts the real value of personal allowance and hence start paying tax at a lower income levels.

Secondly, the overall tax burden rising to 38% of GDP: the highest in 70 years, sends a troubling signal to investors. Add the April 2025 Employer NIC rise to the NLW increase, and businesses in labour-intensive sectors like retail, hospitality and social care face sharply rising employment costs. The IFS has warned this could dampen hiring. Business investment is already one of the UK's weakest economic metrics and higher costs reduce the long-term economic growth in the economy. 

Lastly, raising property income tax by 2% from April 2027 hits on wealthy landlords hard. But tax incidence (who actually bears the burden) rarely falls neatly on the intended target. As landlords exit the private rented sector, rental supply falls while demand stays high, pushing rents up as supply of houses drops and demand remains high. For a Budget that aims to support lower-income households, who disproportionately rent rather than own, this is a significant unintended consequence that works directly against its own objectives. Furthermore, with housing benefits rates frozen, a rise in rents forecast by these tax changes will likely result in wider gaps before support payment and actual costs creating regressive impact and widening the inequality gap 

Conclusion

So, is it beneficial ? Partially and that is probably the most honest verdict any economist could give. The Budget correctly identifies inflation, child poverty, and debt as the UK's most urgent problems, and takes meaningful steps on all three. That is not nothing. But it funds those steps in a way that is economically uncomfortable: a regressive threshold freeze that quietly raises taxes on low earners, a cumulative business tax burden that risks deterring investment, and property tax changes that may worsen the housing crisis they were never designed to address.

The OBR itself only gives a 52–59% chance of the fiscal rules being met, a reminder that this Budget leaves almost no room for error. The diagnosis is largely right. The medicine works. But the side effects are real, and they fall, disproportionately, on people who can least afford them.