Chancellor John Healey's Budget this week is expected to be gentler than Rachel Reeves' two Budgets of 2024 and 2025, which combined raised taxes by £75 billion. The relative restraint marks a shift in approach, with Healey describing the upcoming Budget to Treasury officials as a 'breathing space Budget for households and businesses'. Pre-Budget indications suggest he will avoid repeating the heavy tax rises of recent years, though new financial pressures remain on the horizon.
Several relief measures appear likely to be included. Some one million low-income pensioners could receive a top-up to their tax-free personal allowance, currently set at £12,570, to protect more money from income tax. Energy bill support looks poised to expand through an uplift in the annual Warm Home Discount payment of £150 for those on certain means-tested benefits including pension credit. Planned fuel duty rises, currently levied on unleaded petrol at 52.95p a litre and scheduled to increase to 55.95p at the start of next year, may also be scrapped. Capital gains tax should remain at 18 per cent for basic rate taxpayers and 24 per cent for higher and additional rate taxpayers, with the Chancellor having ruled out further rises earlier this month.
However, savers face significant tax rises already scheduled to take effect in April. The personal savings allowance, which shields savings interest from tax, will be cut by two percentage points, creating new tax rates of 22, 42 and 47 per cent for basic, higher and additional rate taxpayers respectively. Basic and higher rate taxpayers currently protect up to £1,000 and £500 of savings interest annually through their personal savings allowance, unchanged since April 2016. From next April, only those aged over 65 will be able to use their full annual cash Isa allowance of £20,000; anyone under 65 will be limited to £12,000 per tax year into a cash Isa, though they can use their remaining allowance for stocks and shares Isas.
The Budget is also expected to include a tax rise on banks, which could push mortgage costs higher as lenders seek to cover the additional tax burden. This timing creates a squeeze for homeowners already facing rising mortgage rates. Uncertainty about the full details has led some investors to withdraw tax-free cash from pensions ahead of the Budget as a precaution, according to investment platform AJ Bell, despite the Chancellor's efforts to quash unfounded rumours about further pension tax changes.
For savers in the UK, this means the Budget offers temporary respite this week but permanent tax rises on savings accounts and cash Isas begin in April, while mortgage holders face potential cost increases from the bank tax rise.