What the budget means for different ages: from renters and families to retirees

Rachel Reeves’ £40 billion tax break will impact the financial wellbeing of millions of households for years to come.

The impact of the chancellor’s raid will be felt by all age groups, from young workers to retirees. Here’s how last week’s budget could impact you and your finances.

Young workers

First-time buyers could have to pay thousands in extra stamp duty after Rachel Reeves lowered key thresholds.

Next April, the threshold at which new buyers start paying stamp duty will drop from £425,000 to £300,000.

Those who rent will likely feel the pain, too. Experts have warned that an increase in stamp duty for those buying a second home could mean fewer properties available to rent in the future.

This could worsen the existing shortage of properties in the rental market, which has led to dramatic increases in rental prices in recent years – according to rental company HomeLet, the average rent has increased by 40 percent since June 2020.

In the workplace, anyone who starts their career on minimum wage will receive a 6.7 per cent increase, with the national minimum wage rising to £12.21 per hour from April. The minimum wage for 18 to 20 year olds will increase by £1.40 per hour.

However, the effect will unfortunately be largely mitigated by the economic impact of the Chancellor’s National Insurance increases on employers, experts warn. This could translate into fewer jobs, opportunities for promotion and pay increases.

Sarah Coles, head of personal finance at stockbroker Hargreaves Lansdown, said: ‘The impact of higher National Insurance contributions for employers will impact on company finances, and is likely to lead to smaller pay increases further down the road.’

She advises employees to build an emergency safety net by putting some money aside each payday through direct debit into a savings account. As a rule of thumb, you should set aside three to six months of your usual salary as a rainy day fund.

Families

Workers will continue to suffer from an ongoing stealth tax raid on their income.

Reeves has said that the freeze on the thresholds at which income taxes are paid will continue as planned until 2028. This means that already tight household budgets will come under further pressure, due to an effect known as ‘fiscal drag’, which occurs when salaries increase but tax thresholds do not. The tax officer therefore receives a larger share of your income than would otherwise be the case.

As a result of the freeze until 2028, four million additional workers will be forced to pay an additional tax rate (45 percent), bringing the total number above 40 million for the first time according to official forecasts.

Rachael Griffin, tax and financial planning expert at Quilter, said: ‘By choosing to maintain the freeze, the government has ensured that the tax burden continues to rise for millions of people, despite their promises to the contrary.’

Rachel Springall, of savings rates monitor Moneyfacts, says one of the consequences will be that families will find it harder to put money aside for their children. “If things are already tight, how can people save?” she says.

Buried in the budget was another piece of bad news for families. Reeves has abandoned plans to base child benefits on family income – rather than the income of the highest earner – as she warned it would cost too much. It means that the current system, which disadvantages families with one income, will remain unchanged.

And people with young children can be left disappointed. Published alongside Reeves’ Budget was the latest forecast from the Office for Budget Responsibility (OBR), which warned that plans to give working parents 30 hours of free childcare a week could fail. It said: ‘There is a risk of a shortage of supply of funded places and staff for the September 2025 expansion, which will be the largest to date.’

Parents with children at private schools will be dealt a blow after the Chancellor goes ahead with a plan to impose 20 per cent VAT on school fees from January 1. How much this will affect the school fees parents pay depends on the decision of individual schools.

There are fears that mortgage rates will rise again as a result of the Chancellor’s £162 billion in loans, with the OBR predicting they will rise by almost a percentage point to 4.5 percent over the next three years.

Retirees

Pensioners may be forced to reconsider their inheritance plans after the Chancellor introduced a new death tax on pension pots.

Pension pots left to family members will be included in inheritance tax (IHT) from April 2027. This tax grab is expected to affect 8 percent of estates in the first three years. In contrast, only 4 percent of estates are currently subject to IHT, for which 40 percent is levied.

Karen Barrett, chief executive of financial advisers Unbiased, said Reeves’ attack on pensions means rethinking the estate planning people have already done.

She says: ‘If your estate planning is based on the current IHT rules, it is a good idea to review this and consider making changes with a financial adviser.’

Former Pensions Minister Baroness Altmann has warned that by subjecting pensions to IHT, Reeves could inadvertently increase pensioner poverty by giving pensioners ‘an obvious incentive’ to raid their pension pots, potentially leaving them short-changed later .

“People might think, why not take all the money you’ve saved and spend it?” she said.

Good news was that the Chancellor confirmed that the state pension will rise in line with average income, rising by 4.1 percent next April. Anyone who reached state pension age after April 2016 will see their weekly income rise by £9.05 to £230.25 per week – an increase of £472 per year. Older pensioners on a basic pension will get an increase of £6.95 to £176.45 per week – an increase of £363 per year compared to now.