The Art of Green Finance

Rachel Reeves’ first budget will impact most people’s finances. Here’s what it could mean for you.

What the budget means for you…

..if you are struggling

Bus fares – the national bus far cap is going up from £2 to £3. The increase in the cap rate will hit some of the people who are struggling the most and penalises what is a more environmentally friendly way to travel. Funding the cap at £3 will cost the government just £150 million. A significantly better option would have been to reduce the hugely expensive fuel tax relief (see below) and funnel some of that money into buses. If you live in Manchester, the good news is that the bus fare cap will remain at £2. London’s buses will also be exempt from the increase.

Minimum wage – this will rise by 6.7% in April to £12.21 per hour for over 21s. However, as personal allowance has not been increased, more people will end up paying tax. This is known as fiscal drag. Estimate how much tax you will pay here. After 2028, the government say that they plan to raise personal allowance thresholds. This could of course change between now and then.

State pension – will rise by around 4%. However, fiscal drag means more pensioners will pay tax. Estimate how much tax you will pay here.

Winter fuel payments – Only low-income pensioners will retain this payment. Check if you are eligible for help.

Generally good news for low wage workers

…if you are doing ok

Fiscal drag drags on for a bit longer – personal tax allowances will remain frozen until at least 2028 meaning that more people will pay tax and that more people will pay higher rates of tax as wages increase.

Fuel duty – will remain frozen. However, this is a £3 billion tax break for people who drive the most polluting cars and helps subsidise the oil and gas industry. This was an opportunity to apply the polluters pay principle that has been missed, and is clearly a mistake from an environmental perspective.

Taxes on alcohol (with the exception of draught pints) and smoking will rise. There will be a new tax on vapes. Avoid this hit by moderating alcohol intake and quitting smoking!

…if you have money to invest

Capital gains tax on shares that are not within an ISA will modestly increase. The capital gains tax allowance of £3000 is unchanged. Therefore, this will apply only to people who have max’ed out their ISA allowance and sell shares with a capital gain value of more than £3000 per year. Capital gains tax is paid only by a tiny proportion of the UK population and this tax targets the wealthiest people in society.

Inheritance tax thresholds will remain frozen at £325,000. This means that more people will pay this than before, due to property prices rises. In addition, pensions that are passed on to anyone other than the pension holder’s spouse will also be taxed. Business and agricultural property valued at more than £1 million will also now be covered by inheritance tax.

Air passenger duty will increase from April. This will add the equivalent of £2 to an economy airfare, but rates will be significantly higher for business passengers and higher still for private jets. Hard to argue with in light of the climate emergency.

Private schools – VAT will be levied on private school fees and the money raised will be used to fund teachers in state schools. This policy is supported by the majority of the general public.

What is unchanged?

Speculation about the possible abolition or reduction of the 25% tax free pension pot withdrawal, proved unfounded.

Most personal allowances including savings rate allowance, dividend allowance and capital gains allowance are unchanged. Trading and property allowance are also unchanged.

ISA allowances are unchanged. The widely criticised British ISA allowance proposed by the previous government has, as expected, been abandoned.

In summary…

This budget represents an attempt to better fund education and health in particular, and does so by aiming to tax some of the wealthier people in society. At the same time, the budget aims to help some of the worst off, while those in the middle are minimally affected. Whether the budget can also deliver the growth that the government are keen to see, remains to be seen.