In a make-or-break moment for both Reeves and new Prime Minister Keir Starmer, the Chancellor of the Exchequer announced a budget that will raise taxes by the most in at least 30 years — when former Conservative Chancellor Norman Lamont was also trying to restore economic stability.

“The scale and seriousness of the situation that we have inherited cannot be underestimated,” Reeves said in the House of Commons on Wednesday, the first female chancellor to deliver a budget in the 800-year history of the role. “Any chancellor standing here today would face this reality, and any responsible chancellor would take action. That is why today I am restoring stability to our public finances and rebuilding our public services.”

In a major move, Reeves increased the national insurance payroll tax for businesses by 1.2 percentage points to 15% from April 2025, while also reducing the threshold at which companies start paying the tax. She said that would raise £25 billion by the end of the Parliament. Reeves also decided to freeze fuel duty, alongside announcing an increase in the minimum wage.

She unexpectedly ended a freeze on income tax thresholds introduced by the Conservatives, and surprised many watchers by maintaining the freeze on fuel duty.

Reeves also changed the debt measure targeted by the government for its other fiscal rule — which requires debt to be falling as a share of the economy — to give herself space to borrow as much as an extra £70 billion for investment over the course of Labour’s term in office. The government will now target public sector net financial liabilities instead of public sector net debt excluding the Bank of England, she announced.

“This means we count the benefits of investment, not just the costs,” she said. The move will “free up our institutions to invest.” Reeves also said the debt rule would be met on a three-year rolling basis, rather than the previous five-year rolling horizon.

UK government bonds surged and the pound extended losses as Reeves spoke. The yield on 10-year government bonds fell as much as 12 basis points, the biggest decline in more than two months. Sterling traded as much as 0.6% weaker at $1.2937, an almost one-week low.

Domestic-focused stocks extended gains as gilt yields declined. Homebuilder Barratt Redrow Plc was among the biggest advancers, rising 2.3%.

Key UK tax changes announced by Reeves:

• Raising lower rate of capital gains tax to 18% from 10%, and higher rate to 24% from 20%I
• Increasing national insurance payroll tax for businesses by 1.2 percentage points to 15%
• Hike to tobacco duty, air passenger duty, alcohol duty and taxes on vaping
• A residence-based program to replace the non-dom tax break
• Increasing the capital gains tax rate on fund managers’ profits, known as carried interest, to 32%
• Raising windfall tax on the profits of oil and gas firms to 38%

“Chancellor Reeves did a good job socializing some of the riskier policies ahead of time, and markets seem pretty sanguine about it so far,” said James Rossiter, head of global macro strategy, Toronto-Dominion Bank. “On the margin, there have been a few small surprises such as fuel tax freeze, income tax thresholds getting unfrozen, but the big picture is generally that she’s delivering what everyone expected. Sure it’s big spending, big taxes, and big borrowing, but at this point that shouldn’t come as a surprise to anyone.”

The budget is a defining moment in British politics. On top of the historical milestone, it’s also the first by a Labour government since 2010. That was in the aftermath of the financial crisis and weeks before the UK began more than a decade of Conservative-led administrations that oversaw Brexit, the pandemic and the economic fallout from Russia’s war in Ukraine.

That context has allowed Reeves’ to present her budget measures as a “rebuild” job, following on from Labour’s promise to deliver a decade of national renewal that underpinned its landslide election victory. But the narrative has been undermined by a difficult start in power, which has seem drops in business and consumer sentiment as well as Labour’s poll ratings.

It was therefore a key moment for Reeves and Starmer to try to course-correct, and the government is framing the tax rises as a necessary step toward repairing the UK’s public finances and diminished institutions including the National Health Service. Labour refers to that as “fixing the foundations” — a pitch that also promises voters will feel longer-term gains.

Yet there are warning signs for Reeves and Starmer. Day-to-day public spending will only rise by 1.5%, from the 1% that the Tories had allocated, despite media reports that it would rise to 2%. That represents a much greater squeeze on government departments than expected, and risks angering especially the left of the Labour Party.

Public spending remained “very tight,” said Paul Johnson, director of the Institute for Fiscal Studies think tank. The tax rises announced by Reeves were “very big indeed,” he added.

Still, the budget is likely to be judged first on the market reaction, as Reeves’ tries to convince investors that Britain is a safe destination for their money and to avoid a meltdown comparable to the infamous Liz Truss mini-budget of 2022.

Yet interpreting how the budget has landed will take time as economists and businesses assess the impact of Reeves’ announcements. Even Truss’s budget took several days to unravel — and arguably it was then Chancellor of the Exchequer Kwasi Kwarteng’s promise that there was far more to come that helped tip financial markets into turmoil.

While Reeves hopes none of her announcements unravel under scrutiny — a fate that has befallen several predecessors — it may even be years before she can be judged on whether she successfully navigated the seemingly contradictory tasks of ending austerity in public services, boosting growth and delivering fiscal stability. Budget measures — and even the various catchphrases used to define them — have a habit of defining administrations and parties for years.

(Updates with more budget measures from fourth paragraph.)