How the Budget affects YOU: Cash ISAs, income tax, pensions and benefits – what’s in and what’s out of Rachel Reeves’ Budget
Rachel Reeves’s second Budget was prematurely revealed by the unexpectedly early publication of the Budget watchdog’s analysis, which laid out a series of tax increases Ms Reeves would impose to plug a black hole in the public finances.
The Office for Budget Responsibility (OBR) also announced that Ms Reeves will introduce a range of measures aimed at helping people currently struggling with living costs, including ending the long-awaited two-child limit on benefits.
Here we look at the tax increases and cost of living measures in today’s budget.
Chancellor Rachel Reeves will present her budget in the House of Commons this afternoon
economic growth
The OBR raised its forecast for economic growth this year from 1 per cent to 1.5 per cent but cut its forecasts for the next four years.
Income tax thresholds
The Chancellor will extend the freeze on income tax thresholds until 2030, a move previously described as a ‘stealth’ tax rise.
This will push more people to pay taxes for the first time and others to pay higher rates as wages rise.
The OBR said freezing tax thresholds would result in 780,000 more basic rate, 920,000 higher rate and 4,000 more additional rate income taxpayers in 2029/30, and predicted an increase of around £7.6bn in 2029/30.
Pension and salary sacrifices
Ms Reeves will limit the amount of money people can put into their private pension funds through a scheme called salary sacrifice without being subject to tax.
Anything over the new £2,000 limit will be subject to national insurance contributions from 2029; this move is estimated to raise £4.7bn in 2029/30 and £2.6bn in 2030/31. There are currently no limitations.
property taxes
A council tax surcharge called ‘mansions tax’ will be introduced on properties valued at more than £2 million.
‘There will be four price ranges, with a surcharge of £2,500 to £2.5 million for a property in the lowest value range of £2 million, rising to £7,500 for a property valued at £5 million or more, all of which will be increased each year in line with CPI inflation,’ the OBR said.
It is scheduled to raise £0.4bn in 2029/30.
Chancellor Rachel Reeves will present her budget in the House of Commons this afternoon
Electric vehicles tax
Electric vehicle (EV) drivers will have to pay 3p per mile driven under a new tax introduced by the Chancellor.
As more drivers turn to electric vehicles, the move is being made in part to offset reduced fuel tax revenues.
Two child benefit limit removed
The two-child limit prevents parents from claiming universal credit or tax credits for more than their first two children.
The cap, introduced by the Conservative government in 2017, was widely criticized by Labor MPs and anti-poverty advocacy groups, who said removing it was one of the main tools ministers could use to ease poverty.
The move is estimated to cost £3bn by 2029/30, according to the OBR.
Travel expenses frozen
The fuel tax cut will be extended as a way to keep the price of gasoline at the pump low.
The tax has been held at 57.95p since 2011, but the effective rate paid by drivers since 2022 is 52.95p as a result of a ‘temporary’ 5p cut.
Rail fares were also frozen for a year.
Cash Isa limit deduction
The annual cash ISA limit will be reduced from £20,000 to £12,000 per year for people under 65.
The general allowance for under-65s will still be £20,000, but only £12,000 of this is available for cash savings.
People over the age of 65 will be able to deposit their full £20,000 benefit into a cash Isas.
gambling tax
MPs were told the remote gaming tax would be increased from 21 per cent to 40 per cent, the online betting tax would be increased from 15 per cent to 25 per cent, there would be no change for in-person gambling or horse racing and the bingo tax would be abolished.
