Minimum Wage Boost and New “Milkshake Tax” Announced Ahead of Reeves’s First Budget

Rachel Reeves will unveil her first Budget as chancellor tomorrow, but the government has already set the stage with two significant pre-Budget announcements affecting wages, consumer prices and public health policy. A rise in the minimum wage and an expansion of the UK’s sugar tax regime – informally dubbed the “milkshake tax” – were confirmed today, offering the public an early glimpse of Labour’s fiscal direction as Reeves prepares to outline her broader tax-and-spend plans.

The chancellor, who is under intense pressure to restore confidence in the economy while funding overstretched public services, will deliver her Budget at a pivotal moment. After months of speculation over tax increases, spending cuts and borrowing constraints, today’s announcements may foreshadow an approach aimed at balancing cost-of-living support with targeted revenue-raising measures.

Minimum Wage to Rise 4.1% From April

The most substantial announcement centres on wages. From April, the minimum wage for workers aged 21 and over will increase by 4.1%, rising to £12.71 an hour. This follows the latest recommendation from the government’s independent Low Pay Commission, whose proposals are typically adopted in full to maintain predictable wage-setting for employers and workers.

The rise will deliver a welcome boost to millions of workers amid persistently high living costs. While inflation has cooled from its peak, prices remain markedly higher than before the pandemic, particularly for food, rent and energy. For younger workers and those in traditionally low-paid sectors such as retail, hospitality and social care, the uplift represents a meaningful – if not transformative – increase in earnings.

Labour has positioned the minimum wage rise as part of its broader commitment to improving job security and living standards. With the party having promised to make work pay and raise wages across the lower end of the labour market, the increase acts as one of the first tangible policy steps in that direction.

However, the rise may also reignite debates within the business community about the pace of wage growth. Smaller employers, particularly in hospitality and childcare, have warned of tight margins and the need for government support to absorb higher staff costs. While many business groups accept the necessity of wage increases, they have urged the chancellor to avoid sudden regulatory or tax changes that could exacerbate financial strain.

For now, the reaction among workers’ groups has been largely positive. Unions say the uplift is not only overdue but essential to counteracting years of stagnant wage growth and soaring household expenses. They argue that further increases will be needed to bring the minimum wage closer to a real living wage based on actual living costs rather than political decision-making.

The Sugar Tax Expands: Milkshakes, Lattes and More Under New Rules

The second major announcement unveiled today signals a renewed focus on public health: the UK’s existing sugar levy will be expanded to cover milk-based drinks such as milkshakes, frappés and certain flavoured lattes. In addition, the minimum sugar threshold at which the tax applies will be lowered, meaning a broader range of sweetened drinks will be subject to the levy.

This marks the first major reform to the sugar tax since its introduction in 2018, when the Soft Drinks Industry Levy aimed to reduce sugar consumption by targeting products with high added-sugar content. While the original tax prompted significant recipe reformulation across the industry, it left an entire category of sugary milk-based beverages untouched – a loophole criticised by public health advocates for years.

Extending the levy to milk-based drinks is intended to close that gap. Many popular milkshakes, café-style beverages and flavoured dairy drinks exceed sugar levels in taxed soft drinks, but were exempt due to their milk content. The government now argues that the exemption is no longer defensible in light of growing concerns about obesity and rising NHS costs linked to diet-related conditions.

By lowering the threshold for sugar content, the policy also targets drinks that previously skirted the levy, pushing manufacturers to reduce sugar levels further or face higher tax bills. The Treasury expects the reform to generate additional revenue, though its primary objective remains behavioural – encouraging companies to cut sugar and consumers to switch to lower-sugar alternatives.

Industry reaction has been mixed. Public health campaigners such as Action on Sugar welcomed the move as a “long overdue correction” that will help protect young consumers in particular. However, dairy industry representatives warned of potential price increases and argued that milk-based drinks should not be treated the same as carbonated soft drinks, given their nutritional value.

Major coffee chains and fast-food brands have yet to disclose how the expanded levy will affect product pricing, though analysts expect gradual price adjustments rather than sharp overnight increases.

Setting the Tone for a High-Stakes Budget

While today’s announcements were limited in scope, they serve as early indicators of the chancellor’s strategy for her first full fiscal event in office. Reeves must navigate an exceptionally difficult economic landscape: public services are strained, growth remains sluggish, and the government faces competing demands for tax relief, investment and deficit reduction.

Pre-Budget leaks and briefings suggest that Reeves will attempt to strike a careful balance. The minimum wage rise supports working households without new public spending, while the sugar tax expansion raises targeted revenue and aligns with long-term healthcare goals.

These moves may also signal Reeves’s intention to lean on policy mechanisms that shift costs toward private industry – such as levies and regulatory frameworks – rather than broad-based tax increases on households. Still, rumours continue to swirl around multiple taxes that could be raised tomorrow, including:

Capital gains tax
 

Inheritance tax
 

Wealth-related levies
 

Changes to pensions relief
 

Possible adjustments to business taxation
 

Markets will be watching closely. After a tumultuous period marked by the pandemic, interest rate shocks and the fallout from previous fiscal missteps, investor confidence remains delicate. Reeves’s task is not only political but financial: she must convince markets that Labour’s plans are credible, costed and stable.

Political Reaction: A Dividing Line Emerges

The minimum wage increase drew immediate praise from Labour MPs who view the policy as central to the party’s pledge to “make work pay.” Several pointed to the measure as proof that the government is acting quickly to support struggling households.

However, critics from the Conservative Party warned that the rise could increase labour costs at a difficult time for businesses, potentially resulting in job cuts or reduced hours. Some also claim that the additional sugar tax burden could drive up prices for consumers already grappling with high living costs.

Public health advocates counter that the sugar levy has a proven track record of encouraging healthier behaviour without substantial negative economic consequences. They argue that the expanded tax will help slow rising obesity rates and reduce pressure on NHS services.

An Uncertain Path Ahead

For all the significance of today’s announcements, the biggest decisions remain ahead. Tomorrow’s Budget will determine whether Reeves can strike a political and economic balance that satisfies Labour supporters, reassures markets, and avoids placing excessive burdens on households or businesses.

Early indications suggest that the chancellor will pursue a cautious but reform-oriented approach: modest, targeted changes rather than sweeping tax hikes, coupled with attempts to rebuild public services through long-term investment.

Whether this approach will be enough – and whether it will buy Reeves the time and credibility she needs – will become clear only after she delivers her Budget and responds to inevitable scrutiny from both Westminster and financial markets.

For now, the government has set out its opening moves: a focus on boosting wages at the lower end of the labour market, and a renewed push to confront the country’s public health challenges. Tomorrow, the full fiscal picture will emerge, and with it the clearest test yet of Labour’s economic agenda.

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