The new Government pitched this as a Budget that would not hurt working people, but it looks to be anything but, argues Piper Terrett.
In Labour’s election manifesto, the party pledged not to raise taxes for ‘working people’.
On the face of it, Labour’s first Budget in 14 years seemingly avoided hitting them directly in their wallets.
Chancellor Rachel Reeves didn't increase National Insurance directly for workers.
She also didn't extend the freeze on Income Tax beyond 2028 – something which has become a stealth tax as workers get dragged into the higher tax rate bands through pay rises.
The minimum wage has been increased.
Duty on a pint of draught beer was cut and the freeze on fuel duty was also extended.
So, on the face of it, a ‘working person’ (however you might define them) might assume their income was unaffected by the Budget and they would be able to drive to work at the same cost and enjoy a cheaper pint of beer in the pub after the working day was over.
But the big challenge for Reeves was always going to be how to fill the £22 billion financial black hole Labour claims was left behind by the previous Conservative Government.
You can’t raise £40 billion by doing nothing.
Labour’s £25bn National Insurance raid
So, instead, working people’s bosses (don’t they count as working people too?) have been hit with a £25 billion National Insurance (NI) hike.
Reeves announced an increase to NI contributions to be paid by employers, which will increase from 13.8% to 15% from April 2025.
Also, rather than increasing employees’ NI payments, the Government has reduced the benchmark at which employers must contribute from £9,100 to £5,000.
The Government insists this move has not broken its manifesto pledge but it’s pretty obvious to most analysts that employers will seek to recoup the additional expense by cutting staff benefits and reducing the number of pay rises available – something which will hit employees squarely in the wallet.
This is simply a tax hike delivered via a middleman.
Even the Office for Budget Responsibility, the Government’s watchdog, has confirmed that the NI hike will negatively affect pay.
And, since her speech, Reeves has admitted that the National Insurance increases are “likely” to hit pay rises.
She told the BBC this morning: "It will mean that businesses will have to absorb some of this through profits and it is likely to mean that wage increases might be slightly less than they otherwise would have been.
"But, overall, the Office of Budget Responsibility forecast that household incomes will increase during this Parliament.”
Of course, that is yet to be seen.
What's more, when you consider many of the other tax hikes rolled out – from the Stamp Duty hike on additional properties that will hit landlords to the bus fare rise that'll hurt commuters – it's clear many workers will certainly be worse off as a result.
Surprise Inheritance Tax raid on pensions
In a shock move, the Labour Government will also charge Inheritance Tax on pensions from April 2027.
This could lead to many people changing their pension plans, say pension experts, as many workers' Defined Contribution pensions will now form part of their estate.
Pensioners could seek to spend more or gift more of their money before they die to avoid their heirs paying the tax.
The agricultural community where I live is also unhappy that, from April 2026, although the first £1 million in value of agricultural properties will not attract inheritance tax, the remaining value will, which could hit farming families hard as they have to sell assets to pay down the debt.
According to James Farrell, head of rural consultancy at estate agents Knight Frank, they see this as a tax on farming and food production, which they fear the new Government is unsupportive of.
Is this really a one-off?
At least Reeves has tried to reassure us that this Budget is a ‘one-off’ that will not reoccur.
But it’s hard to know if this will really be the case.
None of us has a crystal ball and we can’t see what economic shocks – external or otherwise – could be around the corner that the new Government could have to deal with by introducing other measures incompatible with its manifesto pledges.