New chancellor John Healey faces a daunting task cleaning up the economic mess left by Rachel Reeves, according to experts. Tom Selby, director of public policy at AJ Bell, said Healey has a huge job on his hands. “He must keep the nation’s finances on a firm footing while trying to find cash to pay for the PM’s priorities.”
Healey must fund billions of extra defence spending, fix the social care system and ease the cost-of-living crisis, all while sticking to Labour’s manifesto pledge not to raise income tax, National Insurance or VAT.
Autumn Budget risks
Selby warned Healey against repeating Reeves’ mistakes, particularly allowing speculation about tax hikes to rage out of control before Budgets. “That uncertainty is damaging and can encourage people to make rushed financial planning decisions,” Selby said.
He also urged Healey to end speculation about curbing the 25% pension tax-free cash lump sum. “Billions of pounds of retirement cash was withdrawn based on fear. Without clarity from the new administration this will happen again, further damaging trust in pensions.”
Pension and ISA reforms
Selby called for Healey to rule out cutting tax relief on pension contributions and to revise Reeves’ plan to charge inheritance tax on unused pension pots from next April, which he said would create headaches for grieving families.
Reeves also made ISAs more complex by cutting the Cash ISA allowance to £12,000 for under-65s and creating a charge on cash held in Stocks and Shares ISAs. Selby said: “Rather than pushing ahead with this dodgy agenda, Healey has an opportunity to rip it up and start again.”
Salary sacrifice and tax simplification
Healey should reconsider Reeves’ proposed £2,000 cap on workplace pension salary sacrifice schemes, which Selby said risks weakening a valuable savings incentive. He also urged simplification of the tax system, particularly the £100,000 income tax cliff edge where marginal rates hit 60%.
Shaun Moore, tax expert at Quilter, warned against slapping more taxes on savers and investors, which could deter investment and reduce economic activity. Thomas Pugh, chief economist at RSM UK, warned against more borrowing, saying it risks fuelling inflation and pushing up gilt yields.
