When Kemi Badenoch stood up in Parliament on November 26, 2025, her voice cut through the chamber like a blade. "You promised no tax rises," she said, staring down Rachel Reeves, now Chancellor of the Exchequer. "And now you’ve delivered the biggest tax increase in British history." The moment wasn’t staged—it was raw, real, and the direct result of a leaked Office for Budget Responsibility (OBR) report that revealed the UK’s tax burden would hit a record 38% of GDP by 2029. That’s higher than during the Second World War. And it’s all because of a budget that, by any measure, broke Labour’s core promise.
A Promise Broken, A Nation Paying
Less than 18 months after Keir Starmer led Labour to victory on July 4, 2024, the party’s economic credibility is unraveling. During the campaign, Starmer and Reeves repeatedly assured voters: "We won’t raise income tax, national insurance, or VAT." The message was clear: growth, not graft. But the OBR’s leaked figures tell a different story. The Budget 2025 includes a £26 billion tax increase—the largest in modern British history—with £15 billion coming from personal taxes and £11 billion from other measures. The centerpiece? The freeze on income tax thresholds. It’s not technically a tax hike, but that’s the illusion. As wages rise with inflation, more people are pushed into higher brackets. The OBR estimates this alone will raise £8.3 billion this year, and £8 billion by 2029-30. It’s a stealth tax, and it’s hitting millions of middle-income earners who thought they were safe.The Mechanics of the Pain
The tax package isn’t just about thresholds. It includes a new mansion tax on properties over £2 million, changes to pension tax relief for high earners, and a £3.9 billion cut to the two-child benefit cap. The latter is particularly contentious. Families on low incomes are being asked to absorb the cost of a fiscal gap created by slower-than-expected growth. The OBR now projects the UK economy will grow at just 1.1% annually through 2029—well below the 2.3% Labour had forecast during the campaign. That’s the real story behind the numbers: the budget isn’t just raising taxes to fund spending. It’s raising taxes because spending is spiraling and growth has stalled."It’s not that we want to tax more," Reeves told reporters after the leak. "It’s that we have to." But critics say that’s the language of defeat. The freeze on tax thresholds affects 24 million taxpayers. A teacher in Manchester earning £38,000 now pays more in income tax than they did in 2022, even though their salary hasn’t changed. A nurse in Birmingham earning £42,000 is now in the 40% bracket—something that used to apply only to senior managers. And in London, where property values have surged, the mansion tax will hit nearly 120,000 homeowners. The pain isn’t evenly spread. It’s concentrated where the money is: the South East, London, and Scotland.
Badenoch’s Fire and the Opposition’s Strategy
Kemi Badenoch didn’t just criticize—she dismantled. In a televised exchange, she cited the AC1E YouTube analysis that broke the story: "You said you’d grow the economy. Instead, you’ve chosen to squeeze it. And now you’re asking working families to pay the price." Her line of attack is simple: Labour betrayed its own voters. And she’s right to press it. The Conservatives aren’t just opposing—they’re positioning themselves as the party of fiscal honesty. Badenoch’s team has already begun circulating leaflets in North West Essex with the headline: "They promised no tax rises. They lied. Now you’re paying."What’s striking is how little defence Reeves offered. Her team admitted the OBR’s projections were "accurate but uncomfortable." That’s not a strategy. That’s surrender. And it’s costing Labour support. A YouGov poll released the same day showed Labour’s lead over the Conservatives dropped from 12 points to 4 in just six weeks. The tax increase didn’t just break a promise—it broke trust.
What This Means for the Future
The £26 billion tax hike isn’t a one-off. It’s the opening move in a multi-year fiscal tightening. With the freeze on thresholds lasting until at least 2030, and no sign of economic acceleration, future chancellors will have little room to maneuver. The OBR warns that if growth doesn’t rebound, the tax burden could hit 40% by 2032. That’s the territory of high-tax European economies like France and Belgium—not Britain, which has spent decades positioning itself as a low-tax, pro-business hub.Welfare cuts won’t offset the pain. The £3.9 billion reduction in the two-child benefit cap will push an estimated 200,000 children into poverty, according to the Joseph Rowntree Foundation. And while the government says it’s targeting "inefficiencies," the real target is the working poor. The irony? The very people Labour claims to represent are the ones being squeezed hardest.
What Happens Next?
The next 12 months will be decisive. The OBR will release its full Budget 2025 report on December 15, 2025, with detailed breakdowns by region and income group. Labour MPs in marginal constituencies—especially in the North and Midlands—are already whispering about a revolt. Some are urging Reeves to reverse the threshold freeze before the next fiscal statement in March. But with public debt at 98% of GDP and inflation still hovering around 3.2%, there’s little appetite in the Treasury for retreat.Meanwhile, the Conservatives are preparing a counter-budget. Badenoch’s team is drafting a proposal to unfreeze thresholds, index them to inflation, and replace the mansion tax with a targeted wealth tax on assets over £10 million. It’s a risky play—it could alienate wealthy donors—but it’s also politically shrewd. Voters don’t hate taxes. They hate broken promises.
Frequently Asked Questions
Why is the freeze on tax thresholds considered a tax rise?
Even though nominal tax rates haven’t changed, freezing income tax thresholds means that as wages rise with inflation, more people are pushed into higher tax brackets. For example, someone earning £38,000 today pays more income tax than they did in 2022, even with no raise. The OBR estimates this single measure will raise £8.3 billion this year, making it the largest revenue generator in the budget.
Who is most affected by the £26bn tax increase?
Higher earners in London, the South East, and Scotland face the heaviest hits due to property values and pension incomes. But middle-income workers across the UK are also impacted by the frozen tax thresholds—24 million people will pay more in 2025 than they did in 2024, even without a pay rise. The two-child benefit cap cut affects low-income families, particularly in deprived regions like the North East and West Midlands.
How does this compare to past tax increases in the UK?
The 38% tax-to-GDP ratio is the highest since records began in the 1940s, surpassing the wartime peak of 37.7%. The £26 billion increase dwarfs the £14 billion hike under Gordon Brown in 2007 and the £18 billion under George Osborne in 2012. What’s unique is the reliance on stealth measures like threshold freezes rather than headline rate hikes—making it harder for voters to see the full cost.
Why did the OBR leak the figures early?
The OBR doesn’t leak data—it releases official forecasts on strict timelines. The November 26 leak came from an internal briefing video published by AC1E, which obtained unverified preliminary figures. The OBR confirmed the projections were accurate but emphasized they were still draft estimates. The leak triggered political fallout because it exposed the gap between Labour’s campaign promises and its actual fiscal plan.
Can the government reverse these tax increases before 2029?
Technically, yes—but politically, it’s unlikely. Reversing the threshold freeze would cost £8 billion in lost revenue, which the Treasury says it can’t afford given sluggish growth and rising welfare costs. Any reversal would require either new borrowing or deeper cuts elsewhere. With public debt at 98% of GDP and inflation still above target, ministers fear another tax hike would be worse than the current one.
What’s the long-term impact on the UK economy?
The OBR warns that high taxes and stagnant growth could reduce business investment by up to 1.5% annually over the next five years. The UK’s global competitiveness is already slipping—ranked 12th in the World Bank’s ease of doing business index, down from 8th in 2020. If the tax burden stays above 38%, the UK risks becoming a high-tax, low-growth economy like Italy or Japan, undermining its reputation as a financial hub.
