Set against the two previous tax-heavy Budgets delivered by the now-departed Rachel Reeves, today’s statement was noticeably less damaging to household finances and long-term wealth.
It also offered some welcome relief for small businesses, as Chancellor John Healey seeks to revive struggling high streets across the country.
Thank goodness, many people will be thinking. There were no fresh assaults on pensions and no further restrictions on families’ ability to pass wealth from one generation to the next.
But the Budget still contained several unwelcome surprises for personal finances, with savers and landlords bearing the brunt. In announcing another blow for those who plan prudently, Healey might well have made his predecessor proud.
When the Chancellor addressed savings interest in his speech, I initially assumed he was simply repeating a measure already known: taxes on savings interest, as well as income from second homes and buy-to-let properties, were due to rise by two percentage points from April next year. Reeves had announced that increase in last year’s Budget.
However, a closer examination of the extensive Budget documents revealed the true extent of Healey’s plan. He had laid the groundwork for another two percentage point increase on top of the rises introduced by Reeves.
From April, the tax rate on savings interest will therefore climb from 20 to 24 per cent for basic-rate taxpayers and from 40 to 44 per cent for higher-rate taxpayers. Additional-rate taxpayers will see their rate increase from 45 to 49 per cent.
The decision to target savers and landlords is difficult to understand.
‘Why Healey chose to go after savers and landlords is bewildering,’ writes Jeff Prestridge. ‘Perhaps it was because he believed the move was justified after taking the far wiser decision to reverse Rachel Reeves’s ill-conceived changes to cash Isas’
Perhaps Labour chancellors simply cannot resist targeting those who have saved carefully.
Or perhaps Healey considered the tax increases acceptable because of his far more sensible decision to abandon the ill-judged cash Isa reforms Reeves had put in motion.
That means the planned reduction in the annual cash Isa allowance from £20,000 to £12,000 for everyone except over-65s will no longer go ahead next April. Under the revised plans, every adult will continue to be able to save up to £20,000 a year in a cash Isa.
Whatever the justification, the decision to raise taxes on savers still feels punitive. I will return to the Chancellor’s restoration of the £20,000 cash Isa limit for everyone, including the role played by This is Money and the Daily Mail in securing that reversal.
> Victory for our last ditch call to save the cash Isa
For household finances, however, Healey has taken a considerably more measured approach than his uncompromising predecessor.
That may reflect the growing pressure on family budgets, intensified by the unresolved conflict in the Middle East. Petrol and household energy costs are expected to keep rising, while inflation remains another threat to living standards.
The measures announced to ease the cost-of-living squeeze may appear modest individually, but they should not be dismissed.
Extending the fuel-duty freeze until next July was the right decision, although some analysts argue that Healey should have gone further and reduced VAT on fuel.
He also deserves credit for offering additional help with energy bills by extending the suspension of VAT on electricity until next July and delivering a one-off £100 payment to 20 million households in council tax bands A to D.
These steps will not prevent typical annual energy bills from rising above £2,000 next year, compared with the current price cap of £1,723. Nevertheless, they provide some support at a difficult time and are better than no help at all.
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John Healey with his ministerial team ahead of the Budget. Although the measures he introduced were small in splendid isolation, they shouldn’t be scoffed at, writes Jeff Prestridge
After today’s U-turn, Sarah Harrison, chief executive of the Building Societies Association (BSA), emailed Jeff to say: ‘This is a real victory for savers and for the Daily Mail’s brilliant Save Our Cash Isas campaign’ (pictured in the newspaper earlier this month)
The removal of standing charges on gas bills – likely to kick in next year – will also help many households, especially financially challenged pensioners who are often low gas users.
The Chancellor’s decision to ensure low-income pensioners are given a personal tax allowance top-up to ensure they don’t have to pay tax on any of their state pension is also to be welcomed.
Two final thoughts on the Budget: one positive, one negative.
First, the positive. Healey’s decision not to go ahead with a trimming of the cash Isa allowance for all bar the over-65s makes great commonsense.
As soon as we heard that Rachel Reeves was contemplating such a move early last year, we launched a ‘Hands Off Our Cash Isas’ campaign.
We argued at the time that cash Isas are a key part of many people’s savings, whether in terms of providing a financial buffer, saving towards a dream holiday, or protecting some of their wealth from changes in the stock market. In other words, they should not be tinkered with.
Reeves listened, resulting in a smaller than anticipated reduction in the cash Isa allowance (down to £12,000 rather than £4,000) plus retention of the full allowance for the over 65s. For us, it was a pyrrhic victory.
Yet it turned to a full-blown victory in the Budget today. As soon as Healey announced the full U-turn, I received an email from Sarah Harrison, chief executive of the Building Societies Association (BSA), an organisation which had lobbied the Treasury to abandon the cash Isa changes.
She said: ‘This is a real victory for savers and for the Daily Mail’s brilliant Save Our Cash Isas campaign. You kept a strong public spotlight on an issue affecting millions of people while we kept the pressure on the Treasury.
‘Cash Isas help people build financial security and save for their futures, while also providing an important source of funding for mortgage lending.
‘Today’s decision shows those voices have been heard. Retaining the current Isa limit is a great outcome for UK savers, homebuyers, and the economy.’
I will say no more.
As for the negative. For all the benign nature of Healey’s Budget (the savings and second property tax increase notwithstanding), don’t be lulled into a false sense of security.
Lots of new taxes are coming down the road in the next couple of years; for example, inheritance tax on unused pensions (April 2027) and a crackdown on the amount that workers can pay into their pensions via popular salary sacrifice schemes (April 2029).
In addition, there is no end in sight to the freeze in tax thresholds which is dragging more of our income every year into higher tax bands.
My belief is that this Budget is indeed the ‘breathing space’ that Healey has claimed it is. But only in the sense that it is the calm before the storm.
If Burnham’s Labour were to win a snap General Election next year, I am 100 per cent certain that Healey would clobber us (Middle Englanders, that is) with another round of tax rises. You have been warned.