Rachel Reeves has unveiled her latest Budget, introducing new tax measures totaling £26 million that will impact numerous workers. Reeves emphasized the importance of everyone contributing to the tax system while ensuring fairness, particularly by making the wealthiest individuals contribute more.
Accidental leaks from the Office for Budget Responsibility revealed additional budget changes, such as alterations for savers and the elimination of the two-child benefit cap. To assess the personal impact of these changes, individuals can utilize the Mirror Budget calculator developed by Blick Rothenberg.
Tax thresholds will remain stagnant for an extra three years, leading to increased tax burdens on workers as their incomes rise, a phenomenon known as “fiscal drag.” This approach is considered a stealth tax strategy, allowing the government to collect more revenue without directly raising tax rates.
The freezing of the income tax personal allowance at £12,570 until April 2031 was also confirmed. Tax rates were left unchanged, with the basic rate standing at 20%, the higher rate at 40% for earnings above £50,270, and the additional rate at 45% for earnings exceeding £125,140.
Minimum wage adjustments are set to take effect in April, with a 4.1% increase to £12.71 per hour for workers aged 21 and over. Additionally, the rates for 18 to 20-year-olds, 16 to 17-year-olds, and apprentices will see respective increases.
Savers will face adjustments, including a reduction in the cash ISA limit to £12,000 starting April 2027. The Chancellor also announced higher tax rates on savings interest, affecting different taxpayer brackets.
State pension rates will rise by 4.8% from the following April, with implications for pensioners nearing tax thresholds. Furthermore, changes in salary sacrifice schemes will impact pension savings, with a new cap introduced from April 2029.
Various other changes, such as the removal of the two-child benefit cap, welfare payment increases, and adjustments to Motability and energy schemes, were highlighted in the Budget. Additionally, adjustments in alcohol and tobacco duties, council tax surcharges, and fuel duty cuts were addressed.
The Budget also signaled plans for potential reforms in the Lifetime ISA and discussions on altering the property threshold. Martin Lewis advocated for changes in the Lifetime ISA withdrawal penalties and property value limits.
Overall, the Budget outlined significant changes affecting taxation, wages, savings, pensions, and welfare benefits, aiming to balance contributions across different income segments and sectors.