The Budget raises income tax without changing the rate bands. “The way that most people will feel it in income tax is via what is called fiscal drag – frozen thresholds mean that people drift into higher tax brackets as their wages increase,” says Prof McMahon. “Often called a stealth tax, the Chancellor was at least open that this was a tax increase.”
There are a lot of measures related to growth, but we will have to wait and see if any can kickstart UK productivity growth.
Prof Michael McMahon
Increasing tax rates would have been preferable, argues Prof McMahon. “For example, if the basic rate went from 20% to 21%, extra tax would be paid by everyone paying tax, and actually more would be paid by the highest earners.”
Doing it via freezes means that the tax will only generate predicted revenues if wages increase as expected, and partly this is related to how inflation will evolve. We don’t want the Treasury to welcome higher inflation because it boosts the tax coffers.
Prof Michael McMahon
Under the Budget, battery electric vehicles (EVs) will be taxed £0.03 per mile. Prof McMahon says this reduces the incentive to own them. “Given that EVs pollute less than other vehicles, and there are high environmental and health costs to some of the pollution, we should be looking to aid the transition to EVs as part of climate strategy.”
Property taxes: an opportunity missed?
According to the Office for Budget Responsibility (OBR), the High Value Council Tax Surcharge (HVCTS) is a new charge on owners of residential property in England worth £2 million or more in 2026. It will take effect in April 2028. Properties above the £2 million threshold will be placed into bands based on their property value. Charges will increase in line with CPI inflation each year from 2029-30 onwards.
This is inadequate, according to Professor of Economics, John Muellbauer. “A tax on properties worth over £2 million to start in 2028 to raise £0.4 billion is a Minnie Mouse of a property tax reform,” says Prof Muellbauer. “It leaves the rest of Council Tax, the most unfair property tax in the world, unchanged.”
Effectively adding more bands at the top of Council Tax perpetuates a terrible system that no other country has.
Prof John Muellbauer
The Budget also missed an opportunity to reform Stamp Duty Land Tax, Prof Muellbauer argues. This would have improved mobility and made the economy more efficient. He also notes that the upper ceiling on tax remains unfair, with owners of £50 million and £5 million properties paying the same. “The silver lining is that the scheme is an official recognition of the unfairness of Council Tax and of the need for a revaluation, even if on a limited scale.”
The lifting of the two-child benefit cap
This measure is a step in the right direction, that will improve the day-to-day lives of numerous children, according to Professor Emerita of Sociology and Social Policy Mary Daly. “The removal of the two-child benefit cap is welcome, as is the Chancellor’s framing of this measure in terms of addressing child poverty and not penalising particular children.”
But it doesn’t address wider issues, she notes. “To meaningfully change the lives of children, we need to set our sights higher and think not only about their today but also their tomorrow. What about children’s rights, eliminating child poverty and improving what we do for families living on low income or in other situations of scarcity?“
Left to right: Prof McMahon, Prof Muellbauer, Prof Daly
Left to right: Prof McMahon, Prof Muellbauer, Prof Daly
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