This Budget, with fevered speculation, leaks, rumours, and pre-announcements, has had a bigger build up than a blockbuster film.
In what was never going to be an easy Budget given the state of the UK economy, many tax commentators favoured a rise in income tax. A clear breach of the manifesto commitment not to raise certain tax rates, but honest, clear, minimal drafting of new legislation required, and straightforward for employers and others to plan for and implement next April.
Rather than do this, it was already pre-announced that there would instead be a large number of smaller changes. (One of the later pre-announcements. I could hardly keep pace, right up to the accidental release of the key Budget document by the Office for Budgetary Responsibility minutes before the Chancellor’s speech – the equivalent of a film’s screenplay appearing online before anyone has arrived on the red carpet.)
This slew of smaller measures has come to be described as a ‘smorgasbord’ approach to the Budget.
Here are some of the main points announced for tax:
- Income tax and national insurance thresholds are frozen until 2031. For decades in the past, these thresholds would gradually increase, more or less, with inflation. This continued freeze, means that many people will pay more income tax (‘fiscal drag’).
- The two-child benefit limit will be abolished in April 2026. But no change to the income level above which child benefit begins to be taxed away.
- The yearly cash ISA contribution limit for under 65s will be reduced to from £20,000 per year to £12,000 per year in April 2026. No change to the threshold for stocks and shares ISAs.
- From April 2026, the income tax rates for dividend income in the basic and higher-rate tax bands will increase by 2%. The nil rate for dividends, whereby the first £500 of dividends received per tax year escapes tax, remains the same.
- Fuel duty is frozen until September 2026.
- From April 2027, the income tax rates for savings income will increase by 2%. The allowance for savings, whereby the first £500 to £1,000 of savings income received per tax year escapes tax, remains the same.
- From April 2027, the income tax rates for property income will increase by 2%. The allowance of £1,000, and the rent-a-room relief of £7,500 for income from a lodger, remain the same. Although as with the other allowances, the fat that these allowances are not increasing creates fiscal drag.
- Pension salary sacrifice will be capped at £2,000 pa from April 2026.
- From April 2028, electric vehicles will suffer a 3p per mile charge.
- From April 2028, an annual ‘mansion tax’ or high-value council tax surcharge will apply to homes worth more than £2 million.
It is some years since I partook of a Scandinavian smorgasbord. But I clearly remember it involving people being treated to some food, rather than having to empty our wallets onto the table. By and large, Scandinavian countries levy more progressive tax, with those in a stronger financial position more clearly paying proportionately more. Their tax legislation is less complicated and easier to understand than the UK’s, and less voluminous. In fact everyone else has shorter tax legislation than the UK – ours is the longest in the world. This is not a badge of honour, rather the product of successive small tweaks and knee-jerk changes over decades, with no Chancellor brave enough to make significant simplification.
Unappetising in many ways.