Key takeaways from the budget for social justice organisations in London

There were a number of measures with implications for poverty, inequality and the cost-of-living.

Here are our initial key takeaways for organisations focused on tackling poverty and inequality in London.

A huge moment for child poverty – the two-child benefit cap

The Chancellor has scrapped the two-child benefit cap, marking the most significant anti-poverty measure in years.

The policy, which has been in place since 2017, prevented families from claiming universal credit or child tax credit for any third or subsequent children. Scrapping the cap is expected to lift 350,000 children out of poverty and reduce the depth of poverty for a further 800,000 children, according to the Child Poverty Action Group.

For London, the impact will be transformative. Around 260,000 London children will benefit, east London boroughs like Newham, Tower Hamlets and Hackney seeing the highest numbers. Across the capital, 72,600 households will gain from the policy change.

The cap has been widely criticised as punitive, with no evidence it encourages work – 59% of families affected by the cap have at least one parent in work. It’s a huge moment, and marks genuine progress to tackling poverty at scale. Organisations that have long been campaigning – such as Z2K, the Child Poverty Action Group and 4in10 – deserve huge credit.

Although it’s the most cost-effective way to make a real difference on child poverty, the measure is expensive. By the end of this Parliament it’s expected to cost around £3 billion, and among many it is unpopular. In some parts of the media there is already heavy criticism of the move, and it’s now up to the government to make the economic and moral case for policies such as this which tackle child poverty.

And to really make a difference on child poverty, the government will need to go further. Although many children will be massively helped by this measure, many other households will simply have their income hit by another policy – the benefit cap. In London the cap currently affects 27,000 households, depriving these households of vital income. Single parents, large families and families with young children are the most likely to be affected.

The next key moment will be the child poverty strategy.

Real progress on energy bills

There were positive announcements on energy bills. The Chancellor announced measures to reduce energy costs by ending the Energy Company Obligation and funding 75% of the domestic cost of the Renewables Obligation for three years.

This will remove around £150 on average from household energy bills in Great Britain from April 2026. More than one in ten households in London are in fuel poverty, and for these households the policy will make a real material difference.

The government is also providing an additional £1.5 billion capital investment to tackle fuel poverty through the Warm Homes Plan, in addition to the £13.2 billion already allocated. This investment in energy efficiency measures like insulation could provide longer-term support for households struggling with energy costs.

There were more positive steps on the cost of living – for example rail fares will be frozen next year for the first time in 30 years.

The Resolution Foundation’s initial response outlines the impact the budget will have on the cost of living, describing it as ‘decisive action’.

Minimum wage increase raises the floor for the lowest earners

The Chancellor confirmed that the national living wage will rise by 4.1% – from £12.21 to £12.71 an hour from April 2026, providing an extra £900 a year for around 2.4 million full-time workers. For younger workers aged 18-20, the minimum wage will increase by 8.5% to £10.85.

This is positive news for low-income earners, particularly young people who will see a significant boost. But it's crucial to remember that the national living wage remains the legal minimum – not a wage based on what people actually need to live on.

This is especially important in London, where the cost of living is higher, and the National Minimum Wage is the same across the country rather than being higher in London to meet these costs.

The real Living Wage, calculated based on the actual cost of living, currently stands at £13.45 per hour across the UK – and a substantial £14.80 in London, reflecting the capital's higher costs. Even with this increase, the statutory minimum wage falls more than £2 per hour short of what Londoners need to cover basics like housing, food, and transport.

Read our explainer on the difference between the real Living Wage and the Government's National Living Wage - and why the real Living Wage is so important.

For social justice organisations, the campaign for employers to voluntarily pay the real Living Wage remains as vital as ever. While the minimum wage increase helps, it doesn't close the gap between what the law requires and what people genuinely need to live with dignity in London.

At the same time, it’s important to remember that wage policy is a complicated issue. For example, low pay can mean that it’s not financially viable for young Londoners to take on certain jobs. But a higher minimum wage can make businesses’ bottom lines even tighter, meaning they reduce their number of staff – potentially increasing unemployment or reducing opportunities available.

And nothing substantial on housing

The housing crisis is the biggest challenge facing London. Yet this budget was silent on social housing investment and Local Housing Allowance remains frozen – meaning far bolder action is still needed.

Overall, the 2025 Budget represents mixed progress for tackling poverty and inequality in London. With inflation at 3.6% in October 2025 – well above the Bank of England's 2% target – and government borrowing remaining high, the Chancellor faced difficult choices.

Even in this context, some steps have been taken that will make a difference to improve the lives of people on the lowest incomes. The scrapping of the two-child benefit cap will lift hundreds of thousands of children out of poverty.

But significant challenges remain. The housing crisis requires far bolder action is needed to tackle it. The benefit cap continues to push households into hardship.

The role of civil society in campaigning for these changes shouldn't be underestimated – and the work continues.