by Max B, Year 13
A week ago, Chancellor Rachel Reeves stood, once again, before the Commons to unveil what might be the most controversial Budget of recent years. Her plan is essentially to raise roughly £26 billion in additional tax revenue whilst issuing a plethora of changes to pensions, properties, savings, and benefits to “protect” public services and “stabilise” Britain’s finances. Reeves insisted that the budget was not about punishing the “working people” but about everyone “contributing a little more”. In the article which follows, I’ll try my best to unpack exactly what Reeves is trying to achieve, what it might mean for citizens, and what it might mean if the budget backfires (or pays off).
The Budget comes at a time when productivity and growth forecasts for the UK remain unoptimistic. The government is basically hoping that its mix of investment, welfare and taxes will stabilise public debt without triggering a sharp slowdown of growth. Yet, if growth disappoints, there is little room for error: borrowing costs remain high, and the entire plan remains vulnerable to external shocks, which are becoming more and more likely.
The new fiscal plan is an intriguing concoction of taxes and reforms. The biggest changes are as follows:
- Freeze on income tax & National Insurance thresholds until 2031
- Starting in 2026, rates on savings, dividends, and property income go up by 2 percentage points.
- “Mansion tax” / High-value property surcharge
- From 2029, only the first £2,000 of pension contributions under salary sacrifice will be NIC-free; beyond that, you pay National Insurance
- The cash ISA allowance is cut for most under-65s
- A per-mile tax for electric vehicles is planned from 2028
- The two-child benefit cap is to be scrapped
- Rise in the minimum wage from April 2026
In the short term, the extra money should help to shore up public finances, but this comes with inevitable trade-offs. For households, fiscal drag means that wage increases are likely to be dampened by static tax brackets, especially for those who are closest to moving up tax brackets in the near future. This could reduce disposable income and harm consumption, especially amongst middle- and lower-income households.
In the longer term, the success of the Budget depends largely on how effectively public investment is deployed and whether the new tax burden on households and businesses can be maintained without driving away investment or putting low-income households at a disadvantage.
Critics are already pouncing on the Budget. Opposition MPs have accused Reeves of breaking key manifesto promises and imposing a stealth tax on citizens through the freezes on income tax and NI thresholds. In contrast, many groups are praising the scrapping of the two-child benefit cap and the raise in the minimum wage, which could help Labour at the next election.
There is no doubt that this Budget is bold. If you’re a well-paid landlord or property investor, you might already be wincing. But if you’re a low-paid worker or a struggling family in the UK, there’s a chance the Budget brings modest relief.
It’s all up in the air for the moment. Whilst the impacts of this Budget slowly start to take effect over the coming months, I advise keeping an eye on the stock market: A growing AI bubble promises interesting times ahead for all.
