Unpacking the Budget: How New Rules on Taxes, Wages, and Benefits Will Impact Your Finances
Chancellor Rachel Reeves has presented a sweeping Budget with significant changes that are poised to affect your finances. Here are the critical highlights of the measures and how they may impact you:
Income Tax Thresholds Frozen: The income tax rates will remain unchanged until 2031, meaning pay rises could push you into higher tax brackets without an actual increase in your take-home pay. This freeze will particularly impact lower-income earners, as VAT rates remain stagnant.
2. New Road Tax for Electric Vehicles: Starting in 2028, electric vehicle (EV) and hybrid drivers will be taxed on road use at rates of 3p per mile for EVs and 1.5p for hybrids, on top of existing road taxes. Although the temporary fuel duty cut will continue until September 2026, the introduction of road pricing marks a significant shift in vehicle taxation.
3. Minimum Wage Increases: As of April 2024, minimum wage will see notable increases:
- National Living Wage for those 21+ to £12.71/hour
Minimum wage for younger workers to £10.85/hour for ages 18-20 and £8/hour for ages 16-17.
Apprentice rates will also increase to £8/hour.
4. Council Tax Surcharge: Beginning in 2028, homeowners with properties valued at £2 million or more in England will face a surcharge, which could be regarded as a ‘mansion tax’, impacting approximately 100,000 properties primarily in London.
5. Energy Bill Adjustments: A reduction of certain levies on energy bills is expected to save households £150 annually. These cuts aim to address fuel poverty while encouraging lower carbon emissions.
6. Freezing Rail Fares: For the first time in 30 years, regulated rail fares in England will be held steady until March 2027, helping commuters manage expenses.
7. Changes to ISAs: The allowed tax-free savings limit in cash ISAs will be reduced from £20,000 to £12,000 for those under 65, while those over 65 can maintain the previous limit. This aims to encourage a shift to higher-risk investment options under the government’s growth strategy.
8. Increased Tax Rates on Savings and Dividends: Starting April 2027, taxes on savings income, dividends, and property income will see increases, complicating the tax landscape for savers.
9. Universal Credit Reform: The two-child cap on universal credits will be lifted in April 2025, potentially benefitting many families with multiple children.
10. Salary Sacrifice Cap: A £2,000 cap on pension contributions through salary sacrifice will be introduced in April 2029, which may discourage pension savings among employees as it introduces new taxes.
11. Disability Benefits and State Pension Increases: Disability benefits will rise by 3.8%, and state pension payouts are set to increase by 4.8%, with specific figures provided for both the new and basic state pensions.
12. Additional Measures: Other notable changes include the expansion of the sugar tax, a continuation of NHS prescription freeze, and proposals to enable regional taxes in tourism.
These measures represent a complex and evolving landscape for individuals and families across the UK, impacting everything from income and investments to everyday expenses and benefits.