Rachel Reeves' legacy as Chancellor will be remembered for a series of personal finance changes that leave many households worse off. According to AJ Bell's head of public policy, Rachel Vahey, few have been spared in a multi-billion pound tax-raising exercise that has hammered workers, pensioners, and savers alike.
Winter Fuel Payment U-Turn
The first major controversy came early in Reeves' tenure with plans to strip the Winter Fuel Payment from all but the poorest pensioners, triggering a huge backlash. Months later, ministers performed an embarrassing U-turn, restoring the payment to most pensioners but clawing it back from those with incomes over £35,000. Vahey noted the damage to the government's reputation was already done.
Frozen Tax Thresholds
The freeze on income tax thresholds, extended until 2031, could prove Reeves' most expensive legacy. Originally a Conservative policy, Labour turned it into a decade-long stealth tax. As wages rise, more people are dragged into paying tax or pushed into higher rates. Vahey stated someone earning £75,000 by the end of the freeze could pay almost £4,800 more income tax each year than if thresholds had risen with inflation.
Employer National Insurance Hike
Reeves hiked employer National Insurance from 13.8% to 15% and slashed the threshold from £9,100 to £5,000. Combined with a higher National Living Wage, AJ Bell estimates it added almost £2,400 to the annual cost of employing a full-time worker on the minimum wage, sending unemployment soaring and squeezing company profits.
Higher Taxes on Investors
Reeves raised capital gains tax rates in October 2024 and increased dividend tax by two percentage points from April 2026, lifting basic and higher rates to 10.75% and 35.75%. From April 2027, she will add 2% to savings income tax and property income tax rates. Vahey said tax-efficient shelters like ISAs and pensions have become even more important.
Pensions Dragged into Inheritance Tax
From April 2027, unused defined contribution pension pots will count as part of an estate for inheritance tax. Many savers are rethinking whether to spend, gift, or move pension money. Vahey warned the new rules risk creating a costly administrative burden at an already difficult time.
Salary Sacrifice Attacked
From April 2029, National Insurance savings from pension salary sacrifice will be capped at £2,000 a year, affecting around 3.3 million workplace pension savers. Someone earning £50,000 could lose around £240 a year, while employers face an extra £450 cost. Vahey warned company pension schemes may be watered down or withdrawn.
Pension Uncertainty
One of the biggest complaints was Reeves' refusal to rule out changes to tax-free cash and pension tax relief, leading many savers to withdraw money early. Vahey said the uncertainty damaged confidence and could leave some worse off in retirement after making irreversible decisions.
ISA Reforms Add Complexity
Reeves promised to simplify ISAs but instead made rules more complicated. From April 2027, under-65s face a new £12,000 Cash ISA limit, while pensioners retain the full £20,000. Cash held in Stocks and Shares ISAs while waiting to be invested will become taxable. Vahey believes the reforms risk putting people off investing altogether.
Whatever happens after Andy Burnham arrives in Downing Street, these eight changes are likely to endure. For millions, Rachel Reeves' dismal legacy will live on in pay packets, pensions, savings, and tax bills.
