- Contents of Budget leaked early following publishing error by the Office for Budget Responsibility (OBR)
- Fiscal backdrop looks less horrific than many had feared
- Much trailed extension on the freeze on income tax thresholds announced to 2030-31
- Cash ISA annual allowance to be cut to £12,000 in April 2027, with carve-out for over 65s
- Raft of other personal finance changes announced including hikes to income tax on savings, dividend tax and a curb on pensions salary sacrifice arrangements
Tom Selby, director of public policy at AJ Bell, comments:
“The entire contents of the Budget being accidentally published by the Office for Budget Responsibility (OBR) was perhaps a fitting end to the most leaked fiscal event in living memory. The good news for the beleaguered chancellor Rachel Reeves was that the economic situation painted by the OBR, and the so-called financial ‘black hole’ she faces, is less horrific than many had feared, which was likely the reason a mooted manifesto-busting increase in income tax rates was abandoned.
“There is still significant pain to be felt by millions of households, however, with an extended freeze to income tax thresholds, curbs on pensions ‘salary sacrifice’ arrangements and a hike in dividend and savings tax rates hitting workers, savers and investors. Reeves also set out long-trailed plans to ‘reform’ ISAs, although there is scant evidence the proposal to cut the Cash ISA allowance from £20,000 to £12,000 will do anything to encourage retail investing. Instead, there is a real risk that the April 2027 deadline will drive more people to Cash ISAs in the short term.
“The decision to exempt over 65s from the Cash ISA cut is frankly bizarre given pensioners will in the main be prioritising taking an income from their funds rather than piling in £20,000 a year. All of this adds up to massive extra complexity and friction in the ISA system, rather than the simplification Labour promised ahead of the general election.
“It is hard not to see this as a massive missed opportunity. Instead of focusing on the needs of investors by ripping down the barriers between holding cash and investing for the long term, the government has chosen to stiffen that barrier and make the ISA system more difficult for ordinary people to navigate.
“More positively, neither upfront pension tax relief nor tax-free cash were touched by the chancellor, although her failure to commit to stability in the pension tax system means rumours will inevitably swirl again ahead of the next Budget.
“As a result of the package of measures, Reeves was able to increase the ‘headroom’ against her self-imposed fiscal rules to over £20 billion. Having pledged in her previous Budget that she wouldn’t be coming back for more, the chancellor no doubt hopes this extra fiscal cushion will mean she can actually stick to that promise in future Budgets.”
