- Over eight in 10 (83%) of AJ Bell customers surveyed are either very concerned or somewhat concerned about tax increases from the new Labour government in 2025*
- This is despite Chancellor Rachel Reeves saying to business leaders that she would not be looking to repeat the tax raising measures of her inaugural Budget in future fiscal events
- The spectre of further tax rises would likely impact on consumer confidence, which has taken a huge knock in recent months due to Labour’s gloomy economic messaging
- The government should aim to deliver certainty in the new year by committing to a ‘Pensions Tax Lock’ and taking tax-free cash and pension tax relief off the table to avoid another period of damaging rumours that impact people’s long-term financial situation
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“Back in July, fresh off the back of a thumping election victory and majority in the House of Commons, Labour surely would have been expecting to enjoy a rather jubilant first Christmas recess since being back in government. As it is, Keir Starmer and Rachel Reeves now appear to be facing an economic task far greater than that which they set out during the heady days of the summer and risk being swallowed up by their own fiscal black hole.
“They certainly won’t have received many Christmas cards from the general public, who are not exactly enamoured with the government if we are to believe the polls. But it is the public’s perception of tax that Labour should perhaps pay closer attention to. Over eight in 10 of AJ Bell customers surveyed in December are concerned that the government will continue to raise taxes in 2025. This is despite the chancellor claiming at November’s CBI conference that there would be no more tax rises akin to those in her October Budget, although admittedly this was followed by the prime minister’s inability to back up his chancellor with any similar promises.
“The economic tightrope that Rachel Reeves has been attempting to walk over the past six months is undoubtedly tough, and she is in no enviable position. But if Labour is ever going to realise its central ambition of turbocharging economic growth, it needs to ensure the British public feel secure enough about their personal finances to start spending and investing. This is particularly pressing in light of recent revisions to GDP data from the ONS, which revealed a more stagnant picture for growth than previously thought, with zero growth recorded for Q3 of 2024.
“The full economic effect of the measures announced in the Budget remain to be seen, but we already know that there was considerable damage to people’s personal finances spurred by the press briefing and speculation ahead of Budget day, especially in the sphere of pensions where many people across different providers accessed their pension tax-free cash and increased their pension contributions.
“This being the case, a good place to start would be for the government to commit to a ‘Pensions Tax Lock’ for the remainder of this Parliament, which would take changes to pensions taxation including tax-free cash and tax relief on pension contributions out of consideration at future fiscal events. Until the government provides some reassurance and stability in terms of the tax on long-term savings, they can’t expect retirement savings in the UK to flourish.”
*Based on a survey of 1,530 AJ Bell customers, carried out online between 2 and 6 December 2024.
