Martin Lewis issues verdict on Rachel Reeves’s £26bn tax-raising budget
The increase in income tax thresholds is a “stealth tax” that will leave earners worse off, Martin Lewis has offered his analysis and reaction to the major policy changes outlined in Rachel Reeves’ Autumn budget.
On Wednesday the Chancellor announced a £26 billion tax increase as he looks to plug a multi-billion pound gap in the country’s public finances.
The decision in this Budget to freeze tax thresholds from 2028/29 to help fill the £20bn black hole will raise it by £8bn in 2029-30, pushing one in four workers into the top tax band. 780 thousand more people will pay taxes for the first time.
The founder of Money Saving Expert, whose site offers free, independent advice on saving money, told the BBC’s Martin Lewis Podcast that it represented a “stealth tax” that would leave winners worse off.
“You’ll be worse off. Freezing tax thresholds means that in real terms people pay a higher proportion of their income in tax. As your income increases, you still take home more money. But the spending power of the money you take home may be reduced by hidden taxes.”
Mr Lewis said he had achieved “three wins” from discussions with Treasury officials ahead of Budget preparations and welcomed some of the policies announced by the Chancellor.
He said he was “delighted” with the government’s changes to energy taxes, which will see households get an average £150 cut on their energy bills.
“What they’re doing is they’re taking some of the taxes and policy costs that I’m talking about and they’re going to put them into general taxation. They’re also getting rid of the ‘eco plan’.”
He said he had been told by someone “high up in government” that this would mean a unit rate reduction of around 3.4p per unit rate from the unit price of electricity and 0.3p per kWh from the unit price of gas, which would shave around £150 a year off a typical energy bill.
“The question is ‘will this apply to corrections?’ “I’ve been told that the government plans for companies to pass these savings directly to consumers and they will be working on that.”
Mr Lewis said changes to the cash ISA limit, which would see the cap for under-65s drop from £20,000 to £12,000, were not as bad as they could be, adding that he would “prefer the carrot rather than the stick approach”.
He said £12,000 a year was still reasonable for many people and the aim was not to increase income but to encourage young people to invest rather than save.
“When I met the Chancellor on this issue a few weeks ago, I suggested that a blanket cut to the limit would be heresy, that cutting cash ISA limits for older people to encourage young people to invest would not work,” he said. “So the distinction for those over 65 is completely reasonable and I’m glad you listened.”
“What needs to happen with this is better investment education, easier access to guidance and better investment incentives for young people.”
Mr Lewis also took aim at the OBR’s incidental publication of economic forecasts ahead of the budget.
He said: “This looks like the OBR’s surprisingly thick fingers publishing the budget result before the budget, the government will be furious.”
