How Budget will affect your personal finance from driving and tax to pensions

Personal finance changes in the wake of the Labour Party Budget have emerged after Chancellor Rachel Reeves delivered her speech to the House today. Chancellor Rachel Reeves has announced she will continue the freeze on fuel duty next year and maintain the existing 5p cut as she said that increasing it “would be the wrong choice” in a shock move.

Ms Reeves said the difficult tax-raising choices she had made were required to stabilise the public finances after receiving a dire economic inheritance from the Conservatives. “To begin a decade of national renewal. To fix the foundations and deliver change, through responsible leadership in the national interest. That is our task, and I know we can achieve it,” she said.

In its analysis, the Office for Budget Responsibility (OBR) said Reeves’s choices meant spending would increase by £70bn a year, and taxes as share of gross domestic product would reach a record high.

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State pensions will go up by 4.1%

Chancellor Rachel Reeves reiterated the Government’s commitment to the pension triple lock, telling the Commons: “This commitment means that while working-age benefits will be uprated in line with CPI at 1.7%, the basic and new state pension will be uprated by 4.1% in 2025-26.

“This means that over 12 million pensioners will gain up to £470 next year.” She added: “The pension credit standard minimum guarantee will also rise by 4.1% from around £11,400 per year to around £11,850 for a single pensioner.”

Fiscal drag will end on incomes

On income tax and National Insurance thresholds, the Chancellor told MPs: “The previous government froze income tax and National Insurance thresholds in 2021 and then they did so again after the mini-budget. Extending their threshold freeze for a further two years raises billions of pounds – money to deal with the black hole in our public finances and repair our public services.

“Having considered the issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips.

“I am keeping every single promise on tax that I made in our manifesto. So there will be no extension of the freeze in income tax and National Insurance thresholds beyond the decisions of the previous government.

“From 2028-29, personal tax thresholds will be uprated in line with inflation once again. When it comes to choices on tax, this Government chooses to protect working people every single time.”

Pensions mean inheritance tax

Ms Reeves’ move to apply inheritance tax to family farms will seriously threaten the rural economy in Wales, a Plaid Cymru MP has said. Llinos Medi, MP for Ynys Mon in north-west Wales, said she feared the change announced in the Budget would hit farms hard.

She said: “I am afraid that changes to rules on inheritance will seriously threaten Welsh family farms which are the backbone of the rural economy.” Ms Medi criticised the lack of serious changes to Wales’ funding formula, and said the Chancellor had passed up the chance for significant change.

She told the Commons: “Today the Chancellor had the opportunity for a transformative change, but I’m afraid that Chancellor has decided to give with one hand and take with another. Plaid Cymru recognise the terrible financial legacy inherited from the Conservatives, but this was not the way to fix it.

“No fairer funding formula for Wales. No sign of the £4 billion worth of HS2 consequential owed to Wales, no devolution of the Crown Estate, and no U-turn on the Winter Fuel Allowance or an end to the cruel two-child benefit cap. They could have tried to spread the pain with bigger contribution by the very richest through a wealth tax, for example.”

Stamp duty on second homes will rise

Second-home buyers face a stamp duty land tax surcharge rise of two percentage points – to 5% – starting from Thursday. “This will support over 130,000 additional transactions from people buying their first home, or moving home, over the next five years,” Chancellor Rachel Reeves pledged during her Budget.

Capital gains tax on shares will rise

The headline rates of capital gains tax will increase, with the lower rate rising from 10% to 18% and the higher rate from 20% to 24%, the Chancellor has announced.

The minimum wage is rising

Turning to the cost of living, the Chancellor unveiled a National Living Wage increase of 6.7% to £12.21 an hour. “I know that for working people up and down our country, family finances are stretched and pay checks don’t go as far as they used to,” Ms Reeves said.

“For the first time, we will move towards a single adult rate, phased in over time, by initially increasing the National Minimum Wage for 18-20 year olds by 16.3% as recommended by the Low Pay Commission, taking it to £10 an hour.”

Fuel duty

Ms Reeves said it would be the “wrong choice” to increase fuel duty next year, saying she would continue the freeze and maintain the temporary 5p cut for another year. She told MPs she has to “take some very difficult decisions” on tax, and noted to retain the 5p cut and freeze fuel duty again would cost more than £3 billion next year.

The Chancellor said: “At a time when the fiscal position is so difficult, I have to be frank with the House that this is a substantial commitment to make. I have concluded that in these difficult circumstances while the cost of living remains high and with a backdrop of global uncertainty increasing fuel duty next year would be the wrong choice for working people.

“It would mean fuel duty rising by 7p per litre. So, I have today decided to freeze fuel duty next year and I will maintain the existing 5p cut for another year, too. There will be no higher taxes at the petrol pumps next year.”