Chancellor Rachel Reeves has announced in the Budget a tax hike that will enhance the government’s fiscal buffer to £21.7 billion and support expenditures aimed at alleviating the cost of living for “working individuals.”

This revelation, made in the House of Commons following an inadvertent early release by the Office for Budget Responsibility, detailed various proposals, including an increase in the minimum wage and the implementation of a mileage tax for electric vehicles (EVs).

BBC London provides an analysis of the implications of Reeves’s proposals for the capital.

From April, tens of thousands of workers in London are set to benefit from a minimum wage increase previously revealed by the government ahead of the Budget.

The hourly wage for workers aged over 21 will rise by 50 pence to £12.71, while those aged 18 to 20 will see an 85 pence increase to £10.85. Workers under 18 and apprentices will receive an additional 45 pence, resulting in an hourly wage of £8.

According to the government’s 2024 statistics, approximately 153,200 individuals aged 16 and over in London earn the minimum wage, with the highest concentration—around 10,000—employed in Westminster.

Reeves asserted that the cost of living remains the foremost concern for working individuals; however, businesses have cautioned that further hikes in minimum wage could lead to hiring freezes.

Michael Kill, Chief Executive of the Night Time Industries Association, described the Budget as a “significant setback for the already delicate night-time economy.” He expressed deep concerns regarding both direct and indirect tax increases, particularly in relation to the minimum wage rise.

London’s Mayor, Sir Sadiq Khan, referred to the increase in minimum wage as “fantastic news” for young workers in the capital.

In her Budget speech, Reeves indicated that sectors such as retail, hospitality, and leisure would benefit from “permanently reduced tax rates,” funded by elevated taxes on properties valued at £500,000 or more. Labour estimates that this will assist 111,000 business properties within the city.

According to BBC London’s transport and environment correspondent Tom Edwards, Reeves confirmed government support for extending the Docklands Light Railway (DLR) to Thamesmead as part of the Budget. This expansion will create a new line from Gallions Reach to a new station at Beckton Riverside, subsequently crossing the river to Thamesmead.

The DLR extension represents a significant infrastructure investment that will facilitate redevelopment in the area and will be financed through borrowing by Transport for London (TfL) and the Greater London Authority. Although it is anticipated to lead to the creation of up to 25,000 new homes, the completion will take several years.

However, the Chancellor’s Budget did not allocate funds for the Bakerloo line extension or the West London Orbital. A more immediate measure includes the fare freeze that was announced on Sunday, benefiting rail passengers in the southeast. Transport Secretary Heidi Alexander, a former Deputy Mayor for Transport in London, implemented the freeze, following similar initiatives by Mayor Sir Sadiq Khan. A previous four-year freeze on TfL from 2016 incurred costs of £640 million, and the Department for Transport is hopeful that this significant cumulative cost will be partially mitigated by drawing passengers back to the railways.

Details regarding the impact on TfL’s fares, which are under the Mayor’s jurisdiction, remain unclear. The government previously indicated that TfL fares should reflect March’s inflation (RPI) increase. There is speculation whether additional funding might be allocated for a comparable fare freeze or if Londoners might face fare hikes while fares in other regions remain static.

Moreover, individuals with electric vehicles will be subjected to a new mileage tax starting in 2028, set at 3 pence per mile for EVs and 1.5 pence per mile for hybrid vehicles, two years after the modification of London’s congestion charge to encompass EV drivers.

Karl Mercer, BBC London’s political editor, highlighted that the Budget also introduced a new tax on homes valued above £2 million, impacting over 100,000 households in England. This “mansion tax” will predominantly affect London, where around 70% of properties valued over £2 million are located. Properties exceeding £2 million will incur an annual charge of £2,500, while those valued over £5 million will face an additional £7,500 atop council tax.

The Mayor of London expressed concerns for asset-rich individuals residing in the capital, particularly older citizens who have lived in their homes for extended periods but possess limited cash. Additionally, council tax bands F, G, and H will undergo revaluation, with over 68,000 properties in the band H category defined in 1991 as homes worth £320,000 and above. The largest number of these properties can be found in Westminster (17,272) and Kensington and Chelsea (15,520). The adjustments to council tax bands will only take effect in 2028, once the revaluation is finalized.

Claire Holland, chair of London Councils, which represents all 32 boroughs, stated they would thoroughly examine the proposed surcharge on higher-value properties, emphasizing the need for a fair and empowering approach for local authorities.

Additionally, devolved mayors, including Sir Sadiq Khan, will be authorized to impose a modest tax on visitors lodging in hotels, bed and breakfasts, guest houses, and holiday rentals. The Mayor indicated that this visitor tax would facilitate enhancements to the tourist experience and avoid additional burdens on London residents caused by “over-tourism.” He committed to collaborating closely with the hospitality sector, the tourism industry, local businesses, and council representatives to develop the optimal plan for implementation.

This tax is projected to raise approximately £250 million annually, which would be allocated towards improving local infrastructures in areas with significant tourist activity.

Adam Hug, leader of Westminster City Council, which encompasses many of central London’s key attractions, advocated for a distribution of the tax revenue to local councils rather than being retained solely by mayors.

Allen Simpson, Chief Executive of UK Hospitality, expressed serious concerns regarding the potential negative impact on the industry.