What the budget means for your investments

Today the Chancellor Rachel Reeves presented her Autumn Budget. With the economy having recorded slower-than-expected growth in Q3 this year, inflation running at 3.6% (well above the Bank of England’s 2% target) and the UK facing the largest long-term borrowing costs since 1998, the Chancellor entered this Budget against a backdrop of weaker productivity growth and mounting pressure on public finances.

Britain’s Office for Budget Responsibility lowered its estimate of long-term productivity growth by around 0.3 percentage points. Analysts warn that such a revision could leave a £21 billion gap in the public finances, adding yet another layer of pressure to the Chancellor’s strategy.

Ahead of the statement there has been considerable speculation about which taxes might rise, which will be protected, and how the government plans to balance its fiscal book. Furthermore, speculation had also risen regarding whether or not Labour will keep their pledge from their election manifesto on not increasing taxes on the “working people” (this includes: VAT, National Insurance and Income Tax).

What was expected

Prior to the announcement, there had been several tax options and reforms under consideration, some which included:

• Increase in income tax alongside a two-pence cut to National Insurance contributions
• A freeze of income tax thresholds so that fiscal drag would raise revenue without increasing the rate.
• National Insurance tax for landlords
• Removing CGT relief for higher value home sales
• Remove stamp duty tax but introduce a national property tax
• Changes in council tax

Although reports suggested that an increase in income taxes had been ruled out prior to the Budget, the details remained uncertain until today.

What actually happened

It was a chaotic budget, with the full text published online by mistake ahead of the chancellor’s statement.

Putting that aside, the Chancellor took a more cautious approach characterised by fiscal tightening - consolidating borrowing by a small margin, forecasted borrowing falling in every year of this budget, and by bringing down household bills on energy. The OBR projects this to be a deflationary budget, to reduce inflation by 0.45% next year.

The Chancellor was also quick to point out the OBR upgraded growth forecasts this year from 1% to 1.5% this year - she neglected to mention that the same organisation's projections for the next 4 years have all been lowered.

Overall, the markets are positive on the budget, with the pound moving up since the announcement.

Key takeaways affecting pensions, investments, and income tax:

• From 6th April 2027, the amount allowed within cash ISAs will reduce to £12,000 per year for under 65’s. But it’s important to note that the full ISA allowance remains at £20,000, aimed at encouraging more investment into Stocks and Shares ISAs.
• The UK suffers from the lowest retail investment in G7 - which is also bad for savers. The Chancellor claimed that someone investing £1k per year since 1999 would be £50k better off today than if they had put the same money into a cash ISA.
• Pension contributions through salary sacrifice schemes above £2,000 per year to be subject to national insurance contributions.
• Income tax and NI levels are frozen until 2028 - and over time this brings more people into the higher thresholds as wages rise.
• Tax on property, income and savings and dividend income to increase by 2%.
• Mansion tax: £2500 annual charge for properties worth more than £2m, and £7500 for properties worth more than £5m.
• 3 year listings relief for UK businesses to encourage more UK listings by domestic firms.
• Widening eligibility to enterprise incentives to encourage and reward entrepreneurship.

In her own words - Chancellor’s Reeves remarks

"I am asking everyone to make a contribution, but I can keep that contribution as low as possible because I will make further reforms to our tax system today to make it fairer and to ensure the wealthiest contribute the most." - Chancellor Rachel Reeves

Meanwhile from the opposition

“The chaos in number 10 is having real world consequences.” - Opposition Leader Kemi Badenoch

What this means for the UK economy

This is trying very hard to not be a “back to austerity" measure, nonetheless it still represents a pivotal moment. The above means that the UK is looking to diversify and increase its income. With a budget surplus only occurring in 11 years since 1948 (and only 4 years since 1971-72) the UK has mostly been running a deficit. Labour find themselves facing a structural economic problem.

What this means for your money

The evolving tax landscape reinforces the value of making full use of tax-efficient investment vehicles such as Individual Savings Accounts (ISAs). ISAs offer a significant advantage by allowing savings and investments to grow free from UK income tax and capital gains tax, up to the annual allowance available to each individual.

For retail investors, this means that interest, dividends, and investment gains generated within the ISA wrapper remain tax-exempt, providing a powerful tool for protecting returns and enhancing long-term financial planning.

At Stratiphy, we believe that as budgetary measures introduce new complexities and potential liabilities, maximising ISA contributions becomes an even more important strategy for managing personal finances effectively. We also maintain that diversification is a cornerstone of sound investment strategy and while no approach can eliminate risk entirely, our carefully designed strategies aim to offer an additional avenue for potential long-term growth. We are committed to empowering retail investors by providing them with professional tools and resources, helping them make informed decisions and navigate the complexities of the financial markets with confidence.

Stratiphy does not offer financial advice, if you are unsure about the action you should take then you should consult a professional financial adviser.