Reeves unveils colossal Budget tax changes - what does it mean for the economy?

ITV News' Business and Economics Editor Joel Hills' assesses the big measures announced in Rachel Reeve's historic Budget

We knew taxes were going to rise. Labour set out plans to raise more than £8 billion a year in its manifesto.

That was made up of closing tax loopholes for non-doms, VAT being levied on private schools and a windfall tax on oil and gas companies.

The Labour manifesto clearly promised "no additional tax rises" beyond these.

This is what we got: a really chunky and significant increase to National Insurance for employers - rising from 13% to 15% from April 2025. That alone will take £25 billion off borrowing by the end of the next forecast, according to the Office for Budget Responsibility (OBR).

There were increases too for capital gains tax, which will rise to 24% at the upper rate and 10% at the lower rate, while farmers will feel the brunt of inheritance tax being introduced for the first time on agricultural land from 2027.

Chancellor Rachel Reeves, meanwhile, has committed to extend the threshold freeze of £325,000 for inheritance tax through to the end of 2030.

All in all, that's a total tax rise of £40 billion.

This Budget sees a record tax rise for modern times - larger than those of George Osborne in 2010, Gordon Brown in 1997 and Norman Lamont in 1991.

People can make up their own minds about whether Labour has broken promises or not.

Spending plans laid out in the Labour manifesto indicated a real terms rise in day-to-day spending of around 1%.

Let's look at which government departments will be getting more money. Reeves has pledged to grow the NHS day-to-day budget to £22.6 billion next year and its capital budget to £3.1 billion.

There was also good news for the Department for Education (DfE), which is poised to welcome increased investment of £6.7 billion in 2025.

Have you heard our podcast Talking Politics? Tom, Robert and Anushka dig into the biggest issues dominating the political agenda in every episode…

But not everyone in Whitehall is a winner from today's Budget. Reeves has gone for growth of 1.5% a year going forward.

That means, I suspect, that some government departments are going to face some really tough Budget settlements in the year ahead.

There are some government departments next year who in real terms will have less than they did last year. For example, the Department for Culture, Media and Sport, Environment, Food and Rural affairs, as well as the Cabinet Office.

One area we knew spending would increase was capital investment.

Subscribe free to our weekly newsletter for exclusive and original coverage from ITV News. Direct to your inbox every Friday morning.

The projects that we now know will go ahead include HS2, which will have the "funding required" to begin tunneling work and ensure its brought to London's Euston Station.

There will be further rail improvements in northern England between York, Leeds, Huddersfield and Manchester, and the government will provide funding worth £2 billion for 11 green hydrogen projects in England, Scotland and Wales.

Labour says it needs to make the aforementioned changes from its manifesto because it found a £22 billion black hole in the public finances – a claim the Conservative Party has challenged.

Today, the Office for Budget Responsibility (OBR) Chairman, Richard Hughes, denied the body's review of its March 2024 departmental expenditure limits forecast amounted to criticism of any decision made by previous ministers.

Mr Hughes told broadcasters: "It doesn't involve previous ministers. It doesn't mention previous ministers. It was a review into the institutional relationship between the OBR and the Treasury and the preparation of our March 2024 economic and fiscal outlook.

"In the course of the review we uncovered £9.5 billion worth of spending pressures that the Treasury was aware of at the time, but that weren't disclosed to the OBR."

He added: "Had we been aware of those pressures, we would have had a materially different forecast for departmental spending.

"The Treasury disclosed those pressures to us later on through this investigation, but it has also committed to implementing a set of recommendations to make sure that something like this doesn't happen again."

OBR Chairman Richard Hughes told broadcasters the body would have published a 'materially different forecast' in March 2024 for departmental expenditure limits had it been made aware of '£9.5 billion worth of spending pressures'

If the objective of all this investment spending that's been set out was to turbocharge economic growth, it really hasn't happened.

It's fine in the short term. There is a boost, but beyond 2027, actually, the forecasts are really pretty depressing.

Growth is set to fall from 1.8% annually to 1.5%, then stay at 1.5% the next year.

In terms of the increase in growth, the OBR concludes that the policies announced today temporarily boost output in the near term.

But get this, leave gross domestic product (GDP) largely unchanged in five years time.

Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know…