Budget changes

Rachel Reeves, the chancellor, announced a wide range of budget changes. In this article, we will summarise the key points. Furthermore, we will explain how the changes affect you.

Energy bills

According to the Government, removing the costs of certain green schemes from household energy bills will save a dual-fuel household about £150 per year.

Although both gas and electricity unit rates will decrease, the reduction will mainly affect electricity bills.

Budget chanages to the state pension 

On 23 November, the Government said that both the old and new state pensions will rise. This rise will be in line with average wage growth between May and July, which is 4.8%. The chancellor is going to confirm this.

The increase is due to the triple lock pledge. This guarantees that the state pension will rise by the highest of.

• The September consumer price index (3.8%).
• Average wage growth between May and July.
• Or 2.5%.

 

What do these changes mean?

• The full old state pension will rise to £184.90 per week from £176.45.
• The full new state pension will rise to £241.30 per week from £230.25.

 

64% of pensioners receive the old state pension. As such, they will see a smaller rise than those on the new state pension.

The Government also made a statement regarding state pensioners who have no other form of income. They say that they will ease the administrative burden so that they do not have to pay small amounts of tax via Simple Assessment if the state pension exceeds the tax-free personal allowance. This comes into effect from 2027/28, and how it looks in practice remains to be seen.

The minimum wage will rise by 4.1%

• For workers aged 21 or over, the minimum wage will rise by 4.1% from 1 April 2026. The new amount will be £12.71, up from £12.21. As such, a full-time worker will see an increase of £900 per year.
• For those aged between 18 and 20, the increase will be 8.5%. The new rate will be £10.85 per hour, up from £10. For a full-time worker, this represents a yearly increase of £1,500.
• For 16- and 17-year-olds and apprentices, the rate will rise by 6% to £8 per hour from £7.55.
• Despite budget changes, the minimum wage remains below the real living wage. This is a voluntary employers' pay scheme based on the cost of living, covering 500,000 workers. The Living Wage Foundation, which sets the rates, increased wages by 6.7% last month. They are now £13.45 per hour and £14.80 per hour for those in London. The budget has not changed.

 

The two-child universal credit limit will be lifted

If you currently receive universal credit, the child element applies only to the first two children. As of April 2026, this limit will no longer apply. According to the Government, it will lift 450,000 children out of poverty. Furthermore, from the change, over 550,000 families will benefit from it. The average gain will be £5310 per year. However, some families may benefit more. For example, a family with six children could be £14,000 better off per year.

Some rail fares in England and prescription charges in England are frozen

• Some rail fares in England will be frozen for the first time in over 30 years.
• Prescription charges will be frozen at £9.90 for 2026/27.

 

Changes to cash ISAs

Cash ISAs have been a fundamental part of saving for many people. This is particularly true for pensioners. They allow you to save without paying tax on the interest you earn. However, a budget change may prompt some people to reconsider their options.

You can currently invest £20,000 per tax year into one or more ISAs. This can be either all in a cash ISA, all in a stocks and shares ISA or a combination of both. However, from April 2027, this will change for those under 65. From that date, you will be able to invest a maximum of £12,000 per tax year into a cash ISA. For those over sixty-five, the £20,000 limit remains.

The Government claims that the budget changes will encourage more people to invest.

 

Higher tax rate on property income, dividends, and savings interest

• Dividend income from investments. From April 2026, this will rise by 2%. This applies if you hold investments other than ISAs, your income exceeds your personal allowance, and your dividend income exceeds your annual dividend allowance, which is currently £500. The new rates will be 10.75%, rising to 35.75% for the upper rate, and 39.35% for the additional rate.
• Interest on savings. Not many people pay tax on their savings interest. However, for those who do, the rates will also increase by 2%. As such, the basic rate will be 22%, the higher rate 42%, and the additional rate 47%. This comes into effect in April 2027.
• Property Income. Currently, standard income tax rates apply to income from property. However, from April 2027, this will also increase by 2% above the standard tax rates. As such, the new rates will be 22%, 42%, and 47%.

 

Plan 2 student loan holders will have to pay more

All English students who started university between 2012 and 2022, and all Welsh students who have started since 2012, are on a plan 2 student loan. This means you pay 9% on anything you earn above a certain threshold, currently £ 28,470 per year.

From April 2026, this threshold will rise to £29,385. However, from April 2027, it will be frozen until 2030. As such, you will pay more back under these budget changes.

National insurance and tax thresholds frozen

These thresholds determine when you start paying tax and were meant to rise from April 2028. However, the government has frozen them until 2031.

If average earnings increase and the tax threshold remains frozen, it means that more of your income will be subject to tax. Known as Fiscal Drag. Others call it a stealth tax, but the truth is that it is a direct tax increase on working people.

According to the Office for Budget Responsibility, this will result in 780,000 people paying income tax for the first time. Furthermore, 924,000 people will be forced to pay higher tax rates.

The budget changes only applies to England, Wales, and Northern Ireland, as Scotland sets their own thresholds. Current tax rates in England, Wales,  and Northern Ireland.

Owners of high-value homes to pay more tax

From April 2028, a new council tax surcharge will apply to houses in England worth £2 million or more.

The valuation office will conduct a targeted valuation exercise to identify the houses where the charge will apply. Fewer than 1% of properties in England are likely to be more than the limit. However, for those that do, the charges will be as follows.

• £2 million to £2.5 million will pay £2,500 a year.
• £2.5 million to £3.5 million will pay £3,500 a year.
• £3.5 million to £5 million will pay £5,000 a year.
• Over £5 million will pay £7,500 a year.

 

The charges will rise each year in line with inflation. Revaluations will take place every five years.

The help to save scheme

This is a savings scheme to encourage young people to save. The Government will pay a bonus at the end of the term. The scheme was due to end in 2027, but a budget change has made it permanent.

Budget chnages to the salary sacrifice pension

Despite the Government encouraging people to save for their retirement, they are not helping much.

A tax-efficient way of saving for your retirement and, in some cases, reducing your tax burden was salary sacrifice. You give up some of your salary in exchange for your employer paying the difference into your pension. Under current rules, you do not pay National Insurance on the part you sacrifice. However, following the budget change, from April 2029 the government will cap National Insurance relief at £2,000.

Lifetime ISA to be scrapped

A Lifetime ISA helps those aged 18 to 39 buy their first home, but out of date due to rising house prices. The chancellor has set out plans to consult on a new scheme to help first-time buyers. This will be published in early 2026 and may include an increase in the LISA property price limit for those who already have a Lifetime ISA.

Other changes in the budget

• Fuel duty has been frozen again.
• Alcohol duty to rise to 3.66% from 1 February 2026.
• Potential changes to customs duty for retailers such as Temu.
• From April 2028, a new mileage-based charge will apply to electric vehicles under these busget changes.

 

Summary of the 2025 budget changes

There were many changes in the budget, particularly in terms of taxation. An extra £26 billion in tax increases was introduced. If you are concerned about the long-term implications for your pension planning or savings, we recommend speaking with a financial advisor. Regulated Advice will always strive to find an advisor local to you.