Chancellor Rachel Reeves has finalised her first Budget, setting out a financial plan that will impact households across the United Kingdom. While speculation about tax hikes has been widespread, the confirmed details reveal a mixed picture for personal finances, with some measures offering relief and others potentially tightening budgets.
Taxation and Earnings: The Stealth Raid and Wage Boost
One of the most significant measures is the expected extension of the freeze on personal tax thresholds until 2030. This stealth tax is projected to rake in £8.3 billion a year for the Treasury. As wages rise, more people will be pulled into higher tax brackets without the thresholds adjusting for inflation. The current personal allowance remains at £12,570, with the basic 20% rate applied to earnings up to £50,270 and the higher 40% rate up to £125,140.
In a move that will benefit lower earners, the National Living Wage for those aged 21 and over will rise by 4.1% to £12.71 per hour from April. Younger workers will see even larger percentage increases, with the rate for 18 to 20-year-olds jumping 8.5% to £10.85 per hour.
Savings, Pensions, and Property: A Triple Squeeze?
The Budget is set to introduce changes that could significantly impact long-term savings. Reports suggest the government may cap the amount exempt from National Insurance through salary sacrifice pension schemes to £2,000 a year. Analysis indicates a 35-year-old earning £40,000 could be around £20,100 worse off at retirement as a result.
Furthermore, the annual cash ISA limit is thought to be cut from £20,000 to £12,000, a move criticised as a setback for savers. On property, a new mansion tax surcharge is under consideration for homes in council tax bands F, G, and H, potentially affecting 150,000 households with properties valued over £2 million.
Daily Costs and Levies: From Pints to Prescriptions
Several measures will directly affect day-to-day spending. The state pension will see an above-inflation rise of 4.8% next April, taking the full new state pension to just over £240 per week. However, with the personal allowance frozen, some pensioners may start paying income tax on their state pension for the first time.
Prescription charges in England will be frozen at £9.90 per item. There is speculation that the 5% VAT on energy bills could be scrapped, saving the typical household about £84 a year. Commuters will benefit from a freeze on many rail fares, the first in 30 years, saving some over £300 per year.
Meanwhile, duties on alcohol and tobacco are expected to rise. A bottle of gin could increase by around 45p, and a bottle of red wine by at least 15p. The soft drinks industry levy is also set to be widened, potentially including milk-based drinks in a so-called milkshake tax.
Other notable changes include potential increases in gambling taxes, rises in Air Passenger Duty, and a new pay-per-mile charge for electric vehicles from 2028, which could be set at 3p per mile.
