A seismic shift in social welfare policy has been announced: Chancellor Rachel Reeves has committed to lifting the two-child benefit cap. The decision, delivered with conviction to the House of Commons, signals a clear departure from previous approaches, stating plainly that punishing vulnerable children is not the answer to a struggling welfare system.
The recent Budget unveiled a series of changes poised to impact household finances. Beyond the headline-grabbing benefit cap removal, Reeves addressed concerns about the cost of living, energy bills, and even the future of savings and pensions – a comprehensive package designed to navigate a complex economic landscape.
For the average worker, income tax rates remain unchanged, offering a degree of stability. However, a freeze on income tax thresholds for another two years will subtly, but significantly, alter the tax burden. As wages rise with inflation, more individuals will find themselves pushed into higher tax brackets, ultimately contributing a larger percentage of their income.
A boost is coming for those earning the minimum wage. From April, the hourly rate for those over 21 will increase to £12.71, a 4.1% rise. Younger workers, aged 18-20, will see an even more substantial 8.5% increase, bringing their minimum wage to £10.85 per hour.
Homeowners may also feel the impact, though not immediately. A new “Mansion Tax” is slated for 2028, targeting properties valued over £2 million. The levy will be tiered, with the highest band – properties exceeding £5 million – facing an annual charge of up to £7,500.
The future of ISAs is also evolving. While the £20,000 annual allowance remains intact for now, changes are coming in 2027. The cash ISA allowance will decrease to £12,000, with the remaining £8,000 allocated to stocks and shares. A notable exception exists for those over 65, who will retain the full £20,000 cash ISA allowance.
Pension savers received reassuring news: the tax-free lump sum remains untouched, as does the ability to reclaim tax paid on contributions. However, those utilizing salary sacrifice schemes will see National Insurance savings limited to the first £2,000 of contributions from 2029.
For those living abroad and seeking to bolster their state pension contributions, a change is on the horizon. The option to purchase additional voluntary contributions will no longer be available. This adjustment reflects a broader recalibration of national insurance policies.
Savings and dividends will face increased scrutiny. From April next year, tax on savings interest will rise, making ISAs even more crucial for sheltering cash. Dividend tax rates will also increase by two percentage points for those holding investments outside of an ISA.
Motorists will experience a mixed bag. Fuel duty remains frozen for another five months, providing temporary relief at the pump. However, the temporary 5p fuel price cut will be removed in September, and fuel duty will subsequently increase in line with inflation from April 2027.
Electric vehicle drivers face a new prospect: a pay-per-mile tax, set to launch in April 2028. Experts estimate this could cost the average driver around £255 annually, based on a rate of 3p per mile, and will increase with inflation.
Household bills are expected to see a reduction, with energy costs falling by an average of £150 per year. This decrease is achieved through adjustments to green levies, shifting the financial burden from household bills to government tax receipts.
Student loan repayments are also undergoing changes. For those with Plan 2 loans (taken out between 2012 and 2023), interest rates and repayment thresholds will be frozen for three years beginning in 2027-28, maintaining rates at 7.9% and a repayment threshold of £28,470.
Finally, landlords will face increased tax obligations. The tax on property income has been raised by two percentage points, impacting rental income for basic, higher, and additional rate taxpayers.
