The sense of Deja Vue is overwhelming, the budget last year was supposed to be a “One and Done” but the economics have changed significantly over the past 12 months with borrowing costs increasing not just here in the UK but globally. Along with increases in defence spending and the ballooning welfare bill, it left last year’s historic £40bn of tax rises wanting for more.
The budget is set to raise a further £26.1bn in 2029-30, for context, the total national debt by the end of the year is set to be £2.6trillion. Shockingly, 10% of Government spend is on servicing the debt, therefore it is no surprise that this budget had high stakes to it.
Budget Summary
Freezing of Income Tax Thresholds
This will cover both personal tax and employer National Insurance contributions thresholds for a further 2 years until 2031 (3 years longer than previously planned), raising £8bn.
Savings and Dividend Income
Basic and higher income tax rates on property, savings and dividend income is to increase by 2% from April 2026.
| Income Tax band | Personal Savings Allowance |
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
Cash ISA Changes
The full £20,000 stocks and shares ISA allowance will remain, however for Cash ISAs this will be reduced for the under 65’s to £12,000 shares.
The over 65’s will continue to retain the full £20,000 Cash ISA allowance.
UK Economic Growth Forecast – GDP Figures – Source Office of Budget Responsibility
2025 – 1.5% – above the 1% originally forecast
2026 – 1.4% – below the 1.9% from previous forecast
2027 – 1.6% – below the 1.8% from previous forecast
2028 – 1.5% – below the 1.7% from previous forecast
2029 – 1.5% – below the 1.8% from previous forecast
High Value Council Tax Surcharge
An additional surcharge of £2,500 on properties worth more than £2m and properties worth over £5m will pay a surcharge of £7,500. It is expected to raise over £400m by 2031.
Pension Changes on Salary Sacrifice
There will be a £2,000 cap on pension contributions made through salary sacrifice, this will not take effect until April 2029.
No changes to the tax relief applied to contributions and Tax-Free Cash will remain at 25% of the pension fund.
Inflation
According to the OBR report, inflation is set to average 3.5% this year, this will allow headroom for the Bank of England to cut rates further, welcome news to mortgage holders. 2026 is set to see inflation fall to 2.5% with it returning to the Bank of England’s 2% target in 2027.
Minimum Wage/Living Wage
This is set to rise for 18–20-year-olds to rise from £10 to £10.85 per hour with the living wage to rise from £12.21 to £12.71 per hour.
Basic and State Pension
From April 2026, both are set to rise by 4.8%
Child Benefit
The two-child benefit cap is to be abolished and will come into full effect from April 2026.
Electric and Hybrid Vehicles – Additional Tax
From 2028, Electric Vehicles will be charged 3p per mile and 1.5p for plug in hybrids, this is set to raise £25bn per year – making it an important contribution to the government’s balance sheet.
Rail Fares
These are to be frozen until March 2027 which is the first time they have been unchanged in 30 years!
Summary
There was a significant amount of noise in the lead up to this budget with huge expectations on the looming tax hikes. However, there were no surprises, no big sweeping changes that a lot of the media had made so much hype over, you could say a bit of an anti-climax!
Key aspects that were not in the budget were further changes to the Inheritance Tax rules such as gifts to individuals and the Potentially Exempt Transfer rule of 7 years. All allowances and reliefs will remain as they are.
No changes to the tax relief applied to contributions at the 20%, 40% and 45% tax bands, along with the tax-free cash amount available to remain at 25%.
The salary sacrifice cap will raise a whopping £4.7bn and will have a significant impact on employees and employers as the schemes become less attractive and more expensive for employers to run.
After the calamitous early budget reveal and the yo-yo effect on Government bond yields, markets have responded positively with the cost of borrowing falling, this will be very welcome news for investors and the chancellor.
Whilst there has been a rather chaotic lead up to this budget, including the last minute leak of the OBR report, this should now stop the constant speculation that has hindered business confidence to invest and stifled consumer confidence which has hit growth.
The budget now provides more than double the headroom to ensure that if we suffer from an unexpected slump in our domestic growth the government have the ability to maintain their spending pledges and not raise further taxes (until they do) in the coming years.
The big sticking point is that the deficit will grow before it shrinks, so watch this space!