We were prepared for the worst – a devastating tax hit on Middle England. But today’s Budget, delivered by a feisty Chancellor of the Exchequer, wasn’t quite as bad as most of us expected.
Maybe more financial pain awaits us further down the road when Labour’s ambitious growth plans for the economy go into reverse – and its borrowing plans implode. But for now, it feels as if Rachel Reeves hasn’t duffed up our personal finances quite as badly as she could have done.
Although the detrimental impact of £40billion of extra taxes on household wealth and businesses cannot be underplayed, it could have been a lot worse – especially for those who strive to build wealth to see them through retirement – and not be a burden on the State.
‘My belief in Britain burns brighter than ever,’ said Ms Reeves. Pictured holding the red Budget box as she leaves 11 Downing Street
For example, there was no restrictive cap imposed on the tax-free cash that we can draw from our pensions when we hit age 55.
Given Ms Reeves and her Treasury officials leaked details of many ‘noes’ and ‘yeses’ ahead of today’s Budget, it’s a shame she didn’t confirm early on that tax-free pension cash was not in her sights (at least for the time being). Many people, for sure, accessed it in a panic and will go on to regret such a move in the years to come.
There was also no cap imposed on the amount that can be saved into tax-friendly Individual Savings Accounts – as some experts feared. Nor was there any reduction in the amount that can be invested per year (£20,000 per adult) in these tax-free wrappers.
But make no mistake, there was still plenty of pain to go around for the prudent and those who strive to create wealth for their families.
As far as Middle Englanders are concerned, the biggest Budget ‘nasties’ were changes to both capital gains tax (CGT) and inheritance tax (IHT).
The immediate – yes, immediate – increase in CGT on share sales will inhibit the ability of investors to accrue wealth from investing in the stock market, eating into the profits they make from judicious investing.
The tax rate will increase from 10 pc to 18 pc for basic rate taxpayers while higher and additional rate taxpayers will pay 24 pc on gains rather than the current 20 pc. Thankfully, the annual exemption of £3,000 remains.
These higher taxes will disincentive the savings habit at a time when the Government should be encouraging more of us to build wealth in retirement that will ensure we are not a future burden on the State.
Inheritance tax, levied at 40 pc, will also ensnare more estates as the nil-rate band threshold of £325,000 is yet again frozen (now until 2030 and unchanged since 2009) – and pensions are drawn into the IHT net from 2027.
It will also become more difficult for farmers and small business owners to pass down their businesses through their generations as a result of the removal of reliefs that enabled them to escape big IHT bills.
Jeff Prestridge says we were prepared for a worse Budget than has actually materialised
While the Chancellor stuck to her party’s election manifesto pledge not to increase income tax, the freeze on income tax thresholds still remains in force until 2028. That will mean more people (many elderly) being dragged into paying the tax or seeing slices of their income taxed at a higher rate. A horrible stealth tax.
At the end of the day, it is employers who will take the biggest slice of the financial pain handed out by Ms Reeves – with a £25billion increase in national insurance bills.
As if that wasn’t bad enough, the 6.7 pc hike in the minimum wage (welcomed by those in low paid jobs) will be another cost for them to bear – on top of the cost of complying with new legislation protecting workers’ rights.
For many businesses, their response to this tax hit will be to reduce headcounts, keep a lid on pay rises and dumb down on the pension arrangements they have in place for workers.
‘My belief in Britain burns brighter than ever,’ said Ms Reeves. It’s a positive thought, but I’m not sure it’s a view widely held by many people outside of the Labour party. For the time being, the jury’s out.
This was a Halloween Eve Budget light on treats and heavy on tax tricks.