Premier Rachel Reeves Unveils New Budget Details

Premier Rachel Reeves has introduced her budget, though key specifics were leaked early by official forecasters. This article outlines the key measures and their potential impact on your finances.

Possible Tax Increases

Even if you’re subject to various income tax rates, your earnings might not go up as living costs do. The alternative band, or Tax Base Amount, remains frozen until 2031, which is three years longer than initially planned. As a result, any pay increase may unexpectedly push you into a higher tax bracket, meaning you’ll face taxation on more of your income than anticipated.

For those in Scotland, don’t forget about your own income tax rates. While you might not earn enough to pay income tax directly, you might notice a rise in VAT when buying goods and services—a situation unchanged by this budget.

Increased Costs for Electric Vehicle Drivers

Starting in 2028, electric and hybrid car owners will bear new road-use taxes. EV drivers will pay a fee per mile on top of existing road taxes, with details regarding distance calculations still murky. The fuel tax will remain frozen for five months from April, with plans for gradual increases beginning in September 2026.

Salary Increases Ahead

The Prime Minister has approved a pay rise for April, especially for those earning the minimum wage. Here’s what that could look like:

• Workers 21 and older will earn between £12.21 and £12.71 per hour under the National Living Wage.
• For ages 18 to 20, the national minimum wage will increase to £10.85 from £10.
• For those 16 and 17, the minimum wage will rise to £8 an hour, up from £7.55.

Additionally, the separate apprenticeship wage—applicable to individuals under 19 and those over 19 in their first apprenticeship year—will also go from £7.55 to £8 an hour.

New Taxes for High-Value Homes

Homeowners with properties valued over £2 million in England will face a new council tax premium beginning in April 2028. There will be four price categories, with the extras starting at £2,500 for properties between £2 million to £2.5 million, rising to £7,500 for homes worth over £5 million. Labelled a mansion tax, it’s expected that around 100,000 properties, mostly in London and the southeast, will be affected.

Interestingly, this will require a valuation for homes in the top council tax bands (F, G, and H) for the first time since 1991, perhaps creating a bit of a stir among homeowners.

No Increase in UK Rail Fares

Regulated railway fares in the UK will remain unchanged until March 2027, a notable first in three decades. This includes season tickets for most commuter routes and certain off-peak return tickets. However, unregulated fares can still be set at the discretion of train operators.

Meanwhile, a £3 cap on bus fares is already in effect and will also last until March 2027.

Cash Savings Cap Lowered

The amount you can save tax-free in a Cash ISA drops from £20,000 to £12,000 annually if you’re under 65. Interestingly, authorities are leaning toward encouraging more investments, despite inherent risks. It’s unclear if the relaxation of tax breaks on cash ISAs will naturally drive more people toward stocks and equity ISAs, though about a quarter of current cash savers save more than the new limit.

While pensioners can still save up to £20,000 in cash, the affectees of this change will likely be those under 65. Schemes aimed at assisting low-income individuals on Universal Credit will continue, with extensions announced until 2028.

Expanded Benefits for Larger Families

As it stands, parents can only claim Universal Credit or tax credits for their first two children. However, the Prime Minister has indicated that this two-child cap will be lifted in April next year. Thus, families with three or more children could receive increased support through universal credits and tax credits.

Changes to Employee Pension Contributions

A significant portion of private sector employees, and some public sector workers, utilize the salary sacrifice system for pension savings. Starting in April 2029, contributions through this scheme will be capped at £2,000 per year, despite still allowing for tax reductions on pension contributions. Critics argue this could dampen the motivation to save for later years.

Benefits and National Pensions Set to Rise

Several benefits—including Carer’s Allowance and major disability benefits—will see a 3.8% increase in April to align with rising costs. Furthermore, the national pension will also increase by 4.8%, which translates to:

• The new state pension will reach £241.30 weekly, totaling £12,547.60 annually—up by £574.60.
• The basic pension will go up to £184.90 weekly or £9,614.80 yearly, a rise of £439.40.

It’s important to note that generally, around 35 years of qualifying contributions are necessary for receiving the full state pension.

Changes in Prescription Fees and Mobility Schemes

Additional provisions in the budget include a freeze on NHS prescription fees at £9.90 for another year. Disabled individuals owning cars will no longer be able to use premium vehicles under the mobility scheme. Additionally, mayors in England might gain the authority to implement charges related to overnight stays, often referred to as a tourist tax, with plans for how the revenues would be utilized still under discussion.