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.

Chris Wilkinson from Expert HR Solutions said:

The increase in Employers NI by 2% will hit SME’s particularly hard.  The average salary in the UK is about £36,000 gross so the increase in employers NI would be about £432/year/ employee.  With the median profit margin of an SME being £12,000 this will result in a 3.6% decrease unless the costs are passed on to clients.

This coupled with the increases in all bands of the national minimum wage averaging at 14.75% although for anyone over the age of 21 the increase will be to £12.21/hour (6.7%) or an annual salary of £23,873.61 amounts to a significant increase in cost.  Salary typically amounts to between 25 and 35% of turnover currently so companies will have to work really hard to maintain profit margins.

In their Manifesto the Labour Party promised not to raise taxes for the ordinary working person.  Both of the above have the potential to be ‘back door’ taxes as they have the potential to either, or possibly both, increase prices and reduce employment.  The announcement to freeze income tax thresholds for an additional two years is technically not breaking the manifesto promise but with inflation it will certainly feel like a reduction in take home pay.

Business Rates for Retail, Hospitality and Leisure businesses will be given a 40% relief up to a maximum of £110 which will go some way to offset the increases in the NMW rates and employers NI.

Individually the freeze on tax and NI thresholds will not be extended beyond the freeze announced by the previous government.

Frettens Solicitors:

Earlier today, Chancellor Rachel Reeves presented her first Autumn Budget, announcing some tax rises to 'restore economic stability', as well as an increase in employers’ National Insurance and the National Minimum Wage.

The tax announcements included changes to Capital Gains, Inheritance and Stamp Duty Land Tax.

You can read a summary of the changes by clicking here.

Picture credit: Getty