URGENT UPDATE: Chancellor Rachel Reeves is set to unveil a controversial £3 billion pension raid in this week’s Budget, aiming to finance welfare enhancements, including the elimination of the two-child benefit cap. The announcement, expected on November 29, 2025, has sparked immediate backlash from economic experts and business leaders alike.
Reeves’ proposal targets salary-sacrifice schemes utilized by millions of private-sector workers. This move is reminiscent of former Prime Minister Gordon Brown’s notorious pension raids and threatens to inflict severe damage on private-sector pension funds, which already lag behind public-sector pensions.
Analysts warn that this tax grab could slash workers’ pension pots by thousands of pounds, further burdening cash-strapped businesses that might struggle to compensate for the lost contributions. The Confederation of British Industry (CBI) condemned the proposal, labeling it “a tax on doing the right thing.”
Former work and pensions secretary Sir Iain Duncan Smith expressed grave concerns, stating, “This will be a huge hit on savings. The biggest victims will be middle-income earners who are trying to do the right thing.” He emphasized that reduced pension payouts would adversely affect economic growth, highlighting the proposal’s shortsightedness.
Adding to the urgency, former Bank of England chief economist Andy Haldane warned of a “vulnerable moment” for the UK unless Reeves can reassure financial markets of her spending control. The CBI’s chief, Rain Newton-Smith, called for restraint, insisting, “You will never be able to tax your way to growth.”
As inflation continues to rise—almost doubling under Labour—Reeves has pledged to tackle these issues in her upcoming Budget. The Treasury confirmed plans to freeze rail fares and assist families with energy bills, while also targeting a £1.2 billion cut in benefit fraud.
Under the proposed salary-sacrifice schemes, employees accept lower wages in exchange for increased pension contributions. This system, designed to promote pension saving, costs the Treasury approximately £4 billion annually. Now, Reeves is contemplating capping the salary that can be “sacrificed” to just £2,000, aiming to save the Treasury between £3 billion and £4 billion.
This development comes as Reeves faces pressure from left-wing Labour MPs to abolish the two-child benefit cap, which is projected to cost around £3.5 billion. Earlier this year, Treasury sources indicated that removing the cap was off the table, but renewed demands from Labour MPs may force a reversal in policy ahead of the Budget.
Former pensions minister Sir Steve Webb criticized the cap, arguing it would significantly impact working individuals, contradicting the Government’s stated intentions to protect them. He noted that raising billions through this method would inevitably harm middle-income earners.
In an alarming forecast, the CBI revealed that nearly three-quarters of major firms would not compensate for the pension contribution shortfall, exacerbating the potential fallout for private-sector employees.
Pension comparisons highlight a stark disparity: average public-sector pensions can be up to twice as generous as private-sector counterparts. For instance, private-sector workers might receive approximately £533.80 for every £100 invested over 20 years, while NHS workers could expect £1,130.20.
As the clock ticks down to the Budget presentation, all eyes are on Chancellor Reeves. The implications of her decisions will resonate across the economy, impacting middle-class families and their financial futures. The public awaits her next move, with rising concerns about the direction of UK social policy and economic stability.
What happens next? As Reeves prepares for this pivotal Budget, stakeholders are poised to react. The outcome could redefine welfare funding in the UK, challenging the Government’s ability to balance social support while ensuring sustainable economic growth.
