Reeves pre-Budget speech breakdown

In a speech at Downing Street on Wednesday, Chancellor Rachel Reeves warned of worsening economic woes, setting out the context for her upcoming Budget policy decisions. 

Here, AJ Bell’s experts have summarised some of the potential changes that could be announced when Reeves takes to the despatch box on 26 November.

Income tax

• Potential increase to basic rate of income tax, adding hundreds of pounds to annual bills for average earners. Could incentivise pension saving via higher tax relief. Extension of tax threshold freeze beyond 2028 expected.
• The damage this policy has already wreaked is plain to see, with over 8.3 million people now paying higher or additional rate tax, up over 45% since the start of the freeze in 2021. Extending this stealth tax even further will bring yet more working people and pensioners into higher tax bands.

National Insurance

• Employee NI pledge complicates options, so taxing LLPs or pensioners may be considered. However, that risks backlash from doctors, accountants and venture capital funds.
• Possible NI cut to offset impact of income tax rise on workers while shifting burden to pensioners, landlords, and savers.

Pension salary sacrifice

• Because of tax and NI advantages, pension salary sacrifice has frequently come under scrutiny, as governments search for opportunities to reduce reliefs and boost revenue – but changes could harm pension savings and workers’ morale. 
• A decision is likely to be deferred until after the Pensions Commission report.

State pension reform

• Triple lock supposedly safe for rest of this Parliament, but state pension age currently under review.
• Political cost of state pension reform remains high.

Mansion tax and CGT

• Annual tax on high-value properties or CGT on sale possible, but would likely create uproar and impact housing market.
• CGT equalisation with income tax rates considered; short-term gains likely, long-term impact uncertain.
• There is some doubt over whether raising capital gains tax is good for tax revenues in the long term. Higher rates of CGT will encourage more people to shift money to vehicles where they don’t pay it, like ISAs, gilts and primary residences.

Wealth tax

• Proposed 2% levy on assets above £10 million from a handful of MPs, but fairness and practicality issues persist as it would be very difficult to implement.
• Risks capital flight and double taxation concerns
• While it’s likely to only affect a small group of people, it would be controversial as it rubs up against the Government’s aim to promote wealth creation, and adds further complexity to the tax system.

Policies to boost confidence and support savers

• The Chancellor could perhaps look at the following policies to achieve the government’s stated aims of boosting confidence around investing as well as economic growth.

Pensions tax relief and a ‘Pension Tax Lock’

• AJ Bell calls for stability; currently with over 20,000 signatures, our ‘Pension Tax Lock’ petition asks for a Government commitment to leaving pension tax incentives untouched.

ISA reform

• AJ Bell is calling for the Government to merge cash and stocks & shares ISAs to simplify the ISA landscape and remove barriers to investing.
• Cutting cash ISA allowance not likely to push more people towards investing.
• Reheated UK ISA proposal would introduce further complexity and is unlikely to have desired impact; investors exhibit natural ‘home bias’ towards UK equities on AJ Bell platform.

Stamp duty exemption

• Government should consider an exemption for new UK listings, or all UK shares, to encourage investment.
• It could start by offering this exemption in ISAs only, at a fraction of the total cost to the Treasury.

Inheritance tax

• Rumours of tweaks for farmers by increasing the threshold to £5 million.
• Pension savers face ongoing challenges but Treasury not expected to turn away from its pensions / IHT proposals.
• Possible tightening of gifting rules.