Labour’s pre-Budget message was that anticipated tax rises would not fall on working people.
What they could not make clear however was the definition of a ‘working person’, with those deriving their income from owning assets or investments largely excluded from this description.
Rachel Reeves’s manifesto promise was to not raise the three main personal taxes (income tax, national insurance and VAT), thus not raising taxes on ‘workers’ directly.
However, the headline increase to employers’ national insurance could be seen to contravene this pledge.
Not only was the main employers’ rate increased from 13.8 per cent to 15 per cent, the threshold at which employers start paying the tax on an employee’s salary reduced from £9,100 per year to £5,000.
Employers will bear the brunt of the tax increases rather than employees, with no reversal of previous employee national insurance cuts made by the previous government.
The much-anticipated increase in capital gains tax rates was confirmed.
But the increase to 18 per cent (from 10 per cent) for basic rate taxpayers and 24 per cent (from 20 per cent) for higher and additional rate taxpayers was at least less aggressive than expected.
The majority of workers (those earning a salary) are unlikely to be affected by this, particularly where any savings made are via pensions and Isas.
It will however hurt those that derive an income through investing or capital assets, particularly those at the basic rate of tax and where investing in property, as the increase (5 per cent from 3 per cent) to the stamp duty surcharge on additional properties was a double whammy.
Whilst the increases to CGT are significant, they remain competitive versus income tax and are still the most attractive in the G7, so the hike could have been a lot worse.
Proposed attacks on pensions overall did not come to fruition, the removal of higher and additional rate tax-relief or a reduction in the tax-free cash allowance were not part of the Budget.
The changes that were made won’t hurt people’s pay packets now, but will take a bite out of future generations’ inheritance as it was proposed that personal pension pots are bought back into individuals’ estates from 2027.
It may be that pensioners now draw more from their pensions instead of other available sources, potentially increasing their immediate tax burden.
The state pension ‘triple lock’ remained as did the much-maligned removal of the winter fuel allowance for many.
A ‘tax and spend’ budget on the face of it protected the ‘worker’.
No increase to the main three personal taxes, unfreezing of the income tax bands (from 2029/30) and an inflation busting increase to the minimum living wage.
Instead, the increased tax burden will fall on employers, but this is likely to filter through to the individual in several ways.
