Key Highlights
- Rachel Reeves’ latest Budget increases taxes on those with “broadest shoulders.”
- Measures include freezing rail fares and fuel duty, but also new high value council tax surcharge.
- The budget aims to reduce relative child poverty by 450,000 by the end of Parliament.
- Treasury analysis shows top 10% earners will lose around £2,000 in income due to Budget measures.
The Dual Impact of Rachel Reeves’ Budget
Rachel Reeves, the Chancellor of the Exchequer, has unveiled a budget that seeks to address both the financial burden on ordinary citizens and the need for broader fiscal responsibility. This dual approach is evident in several key measures, including tax increases for those deemed to have “broadest shoulders” and targeted relief for lower-income families.
Who Are the Winners?
The budget includes a series of measures aimed at easing the cost of living squeeze for many households. For instance, freezing rail fares in England and fuel duty across the UK will provide some relief to those struggling with everyday expenses. Additionally, removing certain costs from domestic electricity bills is expected to reduce household energy bills. The government has also announced that scrapping the two-child limit on benefits will reduce relative child poverty by 450,000 by the end of Parliament and raise average incomes in affected families by £5,310 a year.
Who Are the Losers?
The new Budget introduces several measures that primarily impact higher-income earners. A high value council tax surcharge in England is set to raise £400 million annually, while increased income tax rates on property, savings, and dividends will generate an additional £2.1 billion per year. The plan to charge National Insurance on pension contributions made through workplace salary sacrifice schemes is expected to bring in another £4.7 billion.
These measures are designed to ensure that those with the “broadest shoulders” contribute more to the national coffers.
According to Treasury analysis, by 2028-29, these tax measures will reduce the incomes of the top 10% of earners in the UK population by around £2,000. Middle earners are expected to lose around £300, while those at the bottom 20% may see an income reduction of about £200.
Extending the Freeze on Tax Thresholds
A significant measure in the Budget is the extension of the freeze in personal tax thresholds for three more years. This decision means that as wages rise with inflation, more people—particularly those on relatively modest incomes—are likely to face an increase in their tax burden. The Office for Budget Responsibility (OBR) estimates this could result in 780,000 additional people paying tax by the end of 2029-30.
However, it’s important to note that these calculations represent only part of the story.
The actual impact on individuals’ incomes will depend on how well the wider economy performs over the next few years. Given the OBR’s recent downgrade in its overall UK growth forecast, it projects average UK real household disposable income (RHDI) per person—selected as the Government’s target measure of living standards—to grow by just 0.5% annually until the end of Parliament.
In summary, while Rachel Reeves’ Budget aims to provide some relief for lower-income families and address child poverty, it also introduces measures that will disproportionately affect higher earners. The ultimate impact on individuals will depend on a range of factors, including economic performance over the coming years.
