Five key tax and savings policies a new prime minister could revisit

Anyone stepping into the role of prime minister and entering Number 10 midway through a term will have some tough decisions on their plate. They will be eager to stamp their mark on their premiership, yet must balance this with the risk of reneging on key promises made to voters less than two years ago – and threaten to erode public trust in the crucial early weeks.

The first job for any new prime minister is to choose their chancellor. And given how fragile the economy is at the moment, they will be doing that with one eye firmly on the reaction of the gilt market.

Opting to keep Rachel Reeves in the role would signal a commitment to stability, reassuring those seeking continuity. But if a new leader wanted to look elsewhere, then the reaction of the gilt market may depend on the extent it believes the new chancellor might be tempted to break links with the fiscal stance Reeves has set out and instead borrow more or adopt looser fiscal rules. 

If there is a new prime minister, they will also have plenty of other policy decisions to make alongside the chancellor. They’ll need to decide whether to stick with the policies already in motion, or change course and set out a new approach.

Which key policies could change?

Sticking to the manifesto promise not to increase taxes for working people has already landed the current government in hot water, as the chancellor has fought to balance the books without pulling the main revenue-raising levers of income tax, employee national insurance contributions or VAT. Instead, Reeves chose the road of clobbering employers and continuing the freeze on tax thresholds, relying on fiscal drag to boost the nation’s coffers. 

A new PM may be tempted to rip off the fiscal straitjacket and increase the rate of income tax or NI to fund their ambitions. However, doing so would be a huge political gamble and would leave them open to accusations of abandoning the manifesto the government was elected to deliver.

Cash ISAs

The government is slashing the annual Cash ISA allowance for under-65s from £20,000 to £12,000 from April 2027, in an attempt to nudge savers towards investing in Stocks and shares ISAs instead. 

But this approach is doomed to fail, as the government has been told repeatedly by the industry tasked with implementing the changes. AJ Bell research shows two-in-five (40%) Cash ISA holders do not believe the impending cut to the allowance will encourage people to invest. On top of this, the changes will add horrendous complexity to Stocks and shares ISAs, with government expected to apply an onerous set of rules on investors over unproven fears people might otherwise circumvent the new Cash ISA allowance.

A new PM could pull the plug on these unpopular and ill-thought-out reforms, and instead concentrate on better ways to encourage more people to make the jump from saving to investing.

Pensions

From April 2027, any unused pension funds will be included in an individual’s estate when working out what, if any, IHT is due. 

Up to now the tax treatment of pensions on death has been extremely generous, but dragging pensions into the IHT net is set to cause distress for vulnerable grieving families by piling on complex administration and delaying payments out of pension funds.

It doesn’t have to be this way. A new PM could instead choose to adopt one of the alternative approaches the pensions industry has put forward that would raise the same revenue for the government, could be implemented quickly, and would avoid imposing horrendous complexity on millions of people – as well as HMRC (source: Oxford Economics, Alternative approaches to taxing unused pension wealth at death - a report for TISA, July 2025, co-sponsored by AJ Bell).

Scrap pensions salary sacrifice changes

Included in last year’s Budget were changes to reduce the benefits of pensions salary sacrifice for those exchanging more than £2,000 of their salary for employer pension contributions.

Under current rules, pension contributions made through salary sacrifice are exempt from NI, with the new rules set to introduce a limit of £2,000 on the amount that’s free of NI. This is scheduled to come into effect in April 2029.

The new resident of Number 10 could decide to backtrack on these restrictions, amid worries that it would hit some basic rate taxpayers the hardest. Instead, they could keep to a core message of encouraging the nation to save for their retirement by continuing to incentivise saving and investing into a pension.

Introduce a wealth tax

Many governments have flirted with introducing a wealth tax. It certainly has kerb appeal; a 2% levy on individual assets worth £10 million and above could raise around £24 billion annually – although there is significant uncertainty over the behavioural impact such a levy would have on those affected.

Although it’s generally thought that most Brits would back a wealth tax (a YouGov survey showed support at 75%**), perhaps what’s stopping the government is the enormous complexity involved, including the valuation of complicated assets such as art and private companies. It would also hit those who are ‘asset rich but cash poor’ disproportionately hard, and after changes to IHT rules in recent years, any new administration may think twice before taking on the farmers again.