How your household finances could be affected by next week’s budget
The Autumn Budget is set to be unveiled on November 26, the day we’ll find out how the government plans to raise and spend money in the next financial year.
There has been a lot of talk about whether the Chancellor, Rachel Reeves, will increase income tax in the budget, but she’s now said she doesn’t intend to do this.
However as wages continue to rise with inflation, more people will end up paying income tax – or get dragged into paying a higher rate – as the thresholds are expected to remain frozen. They’re currently frozen until 2028, but this could be extended in the budget until 2030.
This means more part-time workers, even those on minimum wage, will reach the threshold of £12,570 a year and have to start paying tax of 20% on everything over that amount. The higher tax rate of 40% kicks in at £50,270, which is no longer as high a salary as it was when these figures were frozen in 2021 due to the rising cost of living.
There could be some good news for families receiving Universal Credit, as the Chancellor is considering scrapping or changing the ‘two-child limit’. The limit prevents parents claiming the Universal Credit ‘child element’ for more than two children, with a few exceptions including multiple births, adoption and children born as a result of abuse. It’s currently worth £292.81 per child (born after 2017).
The Child Poverty Action Group says removing the limit would immediately lift 350,000 children out of poverty.
Meanwhile rumours are swirling about a shake-up to council tax, which is expected to increase bills for those in higher-band properties. Stamp duty – the tax you pay when you buy a home – is also being looked at and might even be scrapped in favour of a ‘property tax’ system that would benefit those buying cheaper homes.
Fuel duty, the tax paid on petrol and diesel, was cut by 5p per litre in 2022 and has been frozen each year since, but it’s currently due to end in April 2026. We don’t know yet whether the freeze will be extended again, but if it’s not, it could cost the average car owner £100 extra per year.
Turning to pensions, there had been talk of cutting the 25% tax-free limit for withdrawing a lump sum of your pension savings – but this now appears to be off the table. The Chancellor might however be about to impose a limit on the amount that workers can save into pensions through ‘salary sacrifice’ without paying National Insurance.
The Chancellor will deliver the Budget speech in Parliament on Wednesday, November 26.
