Martin Lewis has delivered his analysis and reaction to the key policy changes outlined in Rachel Reeves Autumn budget, saying that a rise in income tax thresholds is a “stealth tax” that would leave earners worse off.
On Wednesday, the Chancellor unveiled £26 billion worth of tax hikes as she tried to close a multi-billion pound hole in the country’s public finances.
The decision to freeze tax thresholds in this Budget from 2028/29 onwards, to help fill a £20bn black hole, will raise £8bn in 2029-30 and drag one in four workers into the highest tax band. A further 780,000 people will pay tax for the first time.
The Money Saving Expert founder, whose site provides free and independent advice on saving money, told the BBC’s Martin Lewis Podcast that this represented a “stealth tax” that would leave earners worse off.
“You will be worse off. Freezing tax thresholds means that in real-terms, people are actually paying a higher proportion of their income as tax. You’re still taking home more money as you have an income rise. But the spending power of the money you’re taking home can be reduced because of stealth taxes.”
Mr Lewis said he had “three wins” from his meetings with Treasury officials in the run-up to the Budget and welcomed some of the policies announced by the chancellor.
He said he was “pleased” with the government’s changes to energy levies, which are set to see households receive an average £150 cut in energy bills.
“What they’re doing is they’re taking some of the levies, some of the policy costs that I’ve been ranting about, and they’re going to be moving those into general taxation. They’re also getting rid of the ‘eco scheme’.”
He said he had been told by someone “senior in the government” that this would mean a unit rate reduction of the unit rate of around 3.4p off the electricity unit rate, and 0.3 per kWh off the gas unit rate, which would be about £150 a year off a typical energy bill.
“The big question is ‘will this apply to fixes?’ I have been told that the government intends for companies to pass on these savings directly to consumers and that they will be working on it”.
Mr Lewis said the changes to the cash ISA limit, which will see the cap drop from £20,000 to £12,000 for under-65s, were not as bad as they could have been, adding that he “would’ve preferred a carrot not stick approach”.
He said the £12,000 per year was still reasonable for many people, and the aim was not to raise revenue but to encourage young people to invest rather than save.
“When I met (the) Chancellor on this a few weeks ago, I pointed out that a blanket cut to the limit would be perverse, to cut cash ISA limits to older people to encourage younger to invest wouldn’t work,” he said. “So the carve out for over 65s makes total sense and I’m pleased she listened.”
“What needs to happen along with this is better investment education, easier access to guidance, and better investment incentives for young people.”
Mr Lewis also took aim at the OBR’s accidental publishing of its economic forecast ahead of the Budget.
He said: “This looks like staggering fat fingers from the OBR publishing budget outcome before the budget, government will be fuming.”
