Chancellor Rachel Reeves unveiled her 2025 Budget to Parliament on 26 November, outlining a package of tax rises and new levies. Three Oxford academics
have offered their assessment of the measures, which range from income tax changes to new charges on electric vehicles and high-value properties.
Professor of Economics Michael McMahon characterises the Budget as “a budget of necessary tax rises, and one that builds in a bit more fiscal headroom over the coming years, so long as things evolve as predicted.” The experts highlight the implications of frozen income-tax thresholds, a new mileage tax for electric cars, and the end of the two-child benefit cap.
Income tax: rises delivered by ‘fiscal drag’
Although the Chancellor left income-tax rates unchanged, frozen thresholds mean more earners will drift into higher tax bands as wages rise — a mechanism known as fiscal drag. “Often called a stealth tax, the Chancellor was at least open that this was a tax increase,” says Prof McMahon.
He argues that adjusting tax rates directly would have been more transparent and progressive. “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.”
But revenues from fiscal drag rely heavily on wage and inflation trends. “We don’t want the Treasury to welcome higher inflation because it boosts the tax coffers,” he warns. Despite a raft of measures aimed at stimulating growth, he adds, “we will have to wait and see if any can kickstart UK productivity growth.”
Electric vehicle mileage tax raises concerns
A new 3p-per-mile tax on battery electric vehicles is also drawing criticism. Prof McMahon says the policy risks discouraging EV adoption: “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 taxation: “a missed opportunity”
The Budget introduces the High Value Council Tax Surcharge (HVCTS), a levy on homes in England worth £2 million or more, beginning in 2028. Properties above this threshold will fall into new value-based bands, with charges rising annually in line with CPI from 2029–30.
But Professor of Economics John Muellbauer calls the measure inadequate. Describing it as “a Minnie Mouse of a property tax reform,” he argues it leaves intact what he calls “the most unfair property tax in the world.”
“Effectively adding more bands at the top of Council Tax perpetuates a terrible system that no other country has,” he says. Prof Muellbauer also criticises the failure to reform Stamp Duty Land Tax — a move he says would improve economic efficiency by easing housing mobility. The unchanged upper tax ceiling remains inequitable, he notes, with owners of £50 million and £5 million homes paying the same amount. “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.”
End of the two-child benefit cap: progress, but limited
The decision to lift the two-child benefit cap has been welcomed by Professor Emerita of Sociology and Social Policy Mary Daly, who says the change will significantly improve daily life for many children. “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.”
However, she stresses that deeper reforms are needed. “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?” Photo by Kirsty O'Connor / Treasury, Wikimedia commons.