Rachel Reeves has unveiled the government’s departmental budgets in a highly anticipated spending review. This announcement is crucial as it sets the financial framework for various sectors, although immediate changes to personal finances may not be evident. However, the implications of this review could ripple through the economy, particularly if the Chancellor opts to raise taxes to balance the budget.
Watch her spending pledges below…
While the specifics of any tax changes will remain unclear until the autumn budget—typically scheduled for late October or early November—speculation is already rife among experts regarding potential tax increases or cuts to welfare benefits.
Tax Rises or Welfare Cuts?
Laith Khalaf, head of investment analysis at AJ Bell, highlighted that the expansion of the winter fuel allowance could be a significant factor in discussions about tax increases. He noted, “Whether the Chancellor will now have to raise more money in this year’s budget, and how much that will be, won’t be clear until nearer the time.” Khalaf emphasized that various economic indicators could influence the fiscal landscape before the budget is finalized.
He pointed out that while unexpected economic growth or a more lenient monetary policy could alleviate some financial pressures, there is also a risk that the fiscal situation could worsen, leading to a larger deficit that would need to be addressed through tax hikes or welfare cuts. Khalaf also mentioned the potential for pensions tax reform to resurface, particularly concerning tax-free cash and tax relief.
‘Tax Rises All But Inevitable’
Alison Ring, a director at the Institute of Chartered Accountants in England and Wales, expressed a strong belief that tax increases are on the horizon, largely due to increased spending on defense and health. She stated, “Tax rises are now all but inevitable… no matter what measures are taken between now and the autumn budget.” Ring criticized the government’s approach as a “sticking plaster strategy,” which she believes fails to address the deeper issues plaguing the nation’s finances.
There are indications that council tax may also see increases in the future, aimed at enhancing local authorities’ spending capabilities to support “renewal” projects in 350 communities across the country.
What Has the Government Said?
In response to the discussions surrounding potential tax increases, Darren Jones, the chief secretary to the Treasury, dismissed the notion as “incoherent.” He argued that the spending review is based on funds that have already been raised, referencing the budget from the previous year and the spring statement earlier this year.
Other Ways the Spending Review Will Affect You
The £3 Bus Fare Cap
One of the key measures announced is the cap on bus fares outside London, which will remain at £3 until at least March 2027. This initiative aims to make public transport more affordable for commuters and residents alike.
Winter Fuel Payment
After a reduction in the winter fuel payment for many pensioners this year, the government has reinstated this benefit for approximately nine million individuals receiving the state pension. Eligible pensioners in England and Wales with an annual taxable income of £35,000 or less will receive a payment of up to £300.
Free School Meals
Starting from September next year, all children whose parents claim universal credit will be entitled to free school meals. This initiative aims to alleviate food insecurity among families and ensure that children have access to nutritious meals during school hours.
