How the budget will affect you

Chancellor Rachel Reeves has announced a new budget that could impact your finances in a few key ways. Here’s a breakdown of the main changes:

Wages for low earners are going up

Starting in April, minimum wages across the UK will increase:

    •    Workers 21 and over: £12.21 per hour (up from £11.44)

    •    Ages 18 to 20: £10 per hour (up from £8.60)

    •    Ages 16 and 17, and apprentices under 19: £7.55 per hour (up from £6.40)

Many employers will have to make a bigger contribution to National Insurance (NI) covering more of the people they employ.

NI paid by employees will not change.

But businesses say the chances of you getting a job or a pay rise may be hit as a result of the extra financial burden employers face. 

Some could raise prices to cover the cost.

Changes to travel costs

If you travel by bus, expect a price hike. Starting in 2025, the single bus fare cap in England will go up to £3 (from £2). In London and Greater Manchester, fares will remain lower thanks to different funding. Fuel duty will stay frozen, and a 5p-per-litre cut will continue.

New taxes on inherited pensions and wealth

In 2027, pensions inherited after someone’s death will count toward inheritance tax, which might mean higher tax bills for some families. From April 2026, family farms and businesses worth over £1 million will face some inheritance tax as well. Capital gains tax, paid on profits from selling things like second homes, will also increase.

Private school fees to rise

Starting January 2025, a 20% VAT will be added to private school fees. Parents will likely have to pay more, depending on what schools decide.

Changes to benefits and pensions

Benefits like Universal Credit will increase by 1.7% in April to keep up with inflation. State pensions will also rise:

    •    New flat-rate state pension: Expected to be £230.30 per week.

    •    Old basic state pension: Expected to be £176.45 per week.

A separate review of health and disability benefits is also planned. However, many pensioners will lose their winter fuel payments of up to £300 due to cuts.

Income tax remains the same

Income tax rates will stay frozen as planned. Although rates won’t increase, pay raises could push you into a higher tax bracket until 2028. Scottish residents follow different income tax rules.

Tougher penalties for tax avoidance

If someone avoids paying their taxes, they’ll face higher interest rates on any overdue payments.

Rob Stokes, Director at Swindon-based accountancy and law firm, Optimum Professional Services, said:

“As expected, the Chancellor revealed increases in employers’ National Insurance. This, along with the increase in the National Minimum Wage, makes for hefty additional outgoings for employers. Increasing the Employers Allowance will help soften the blow for businesses with only a few employees.

“The wage rises alongside National Insurance increase, plus alcohol duty on non-draft alcohol and sugar duty rise, will have a massive impact on the hospitality industry that is already struggling. Throw in employee law reforms and it’s looking a lot bleaker for that sector. 

“Also as expected, Stamp Duty Land Tax on second homes has increased which will have implications for landlords and affect investment strategies, but at least the Capital Gains Tax on gains made from the sale of second homes has stayed the same.”

Financial commentor, Thomas Kriaras from Wiltshire said:

"Rachel Reeves’ autumn budget, as expected, is a setback for working people. Rishi Sunak foresaw this, stating, 'He’s going to put up your taxes, your bills. As clear as night follows day.' And he seems to have been right.

"Labour, elected on the promise not to raise National Insurance, Income Tax, or VAT, instead increased an array of other taxes - targeting National Insurance (for employers), capital gains, inheritance, energy, business rates, and stamp duty. This indirect tax burden undermines their promise to protect "working people" and raises questions about the party’s experience in governing effectively.

"In trying to shield working families, Labour overlooks the impact of these tax increases on wages, hiring, and cost of living. Employer National Insurance hikes could stunt wage growth, especially in labor-sensitive industries like farming, while capital gains tax increases may discourage investment, impeding economic growth. Small businesses, already struggling, could face limitations in hiring or offering wage raises.

"With a cost-of-living crisis at its peak, Labour’s approach risks exacerbating financial pressures. The top 10% of earners already contribute 60% of income tax receipts, so squeezing individuals and small businesses further is unlikely to stimulate the economy. Rather than achieving the projected 1.1% GDP growth, these policies may push it in the opposite direction.

"I never thought I’d miss Rishi Sunak and the Conservatives, despite their issues with economic policy. Labour’s approach seems to echo the Conservative playbook but on a grander, more concerning scale."

Ben Coulson, Partner in Thrings’ Succession and Tax team, said:

“Whilst not unexpected, the Inheritance Tax freeze being extended for a further two years isn’t good news as, coupled with inherited pensions being brought into the regime, it is very likely that estates will be paying more than they had previously. The changes to pensions also mean they will become a less tax-efficient vehicle.”

Samantha Doherty, Partner in Thrings’ Succession and Tax team, said:

“For any farming business that owns land and property, there is a good chance that estate will exceed the £1million asset value threshold and the existing nil rate bands. A lot of these businesses won’t have the cash readily available and so the inheritance tax bill will potentially jeopardise the business, especially if they are hit hard by the increase in interest rates on instalment payments from HMRC.

“These changes don’t come in for another 18 months. As such, succession planning is now more important than ever to ensure the next generation is able to take over a viable business that isn’t hamstrung by the financial burden of inheritance tax.”

John Richardson, Partner in the Thrings Corporate team, added:

“An increase to CGT on shares and business assets was widely anticipated and in reality, this was not as bad as some feared. Whilst this is an increase, it is still lower than a number of leading European economies, keeping it relatively low by international standards.”

Alice Altounyan, Partner in the Thrings Residential Property Team, said:

“A change in stamp duty is not completely unexpected but there will be concerns over how this will affect the second home market – including buy-to-let and holiday homes – and whether this will have a knock-on effect on rents. With the change coming in tomorrow, we will no doubt expect a flurry of activity today.

“It is also important to note that the Chancellor did not announce any extension to the current stamp duty holiday which was introduced in September 2022 and is set to end in March 2025.  This will affect almost all buyers and so we expect a rush next year on transactions looking to complete before April 2025.”

Picture credit: Getty