Budget 2025: Instant reaction special!

0:17Hello and welcome to this episode of the Martin Lewis podcast and this is an instant budget reaction special. The Chancellor has not long ago sat down. I've got a raft full of notes in front of me. Lots I want to talk you through, including tax, energy savings, pensions, benefits, student loans, mobile bills, property and more. I'm going to start off with the interview I've just done with Matt Chorley on Five Live, but I've got a lot more to add after that. Now though, let's find out, far more importantly, what Martin Lewis made of the budget. Afternoon, Martin. Hello. Yeah, I I mean, surprisingly, lots of retail policies in there.

0:54Those are the practical policies that I focus on rather than the bigger macroeconomic stuff out there. I've got a list in front of me, a summary of the 12 main points from my perspective. And if I give you an idea that the 12th point includes the fact that bus fares, rail fares and prescriptions are frozen, fuel duty cut has been extended for a year, booze going up with RPI, cigarettes going up with inflation plus 2 percent. That's the 12th point. You can imagine just how big this list is. Of course, the headline is frozen tax thresholds. You know, fiscal drug going to go on to 2031, way beyond this parliament, interestingly.

1:26Will the government still be here? That's more your side than my side of it. But fiscal drug, let's be very plain, is a stealth tax, long known about, long happened. For those who don't understand it, it works like this. Tax thresholds are frozen, but earnings, average earnings are rising and inflation is rising. So if you freeze the tax threshold and your earnings are going up, then a bigger proportion of your income is going to be paying tax than it would have done otherwise if the thresholds have gone up as well. And that means we pay more income tax. The rates haven't gone up, but we still all pay more income tax because average earnings going up and inflation is going up.

2:01But there's so much in here. Just on that, Martin, we should explain that you won't necessarily be worse off. It just means if you get a pay rise, you end up paying more tax than you would have done. And I suppose there's clearly a gamble there by politicians. They think, well, you don't see your pay packet shrinking. so therefore you might be less cross than if they'd put up the income tax. Forgive me, Matt. I disagree. You will be worse off. Let's do it on very plain numbers, right? If inflation is going up 4%, Yeah, but that's OK, yeah. Prices are going up and earnings are going up. Earnings and prices tend to go up in a relatively proportionate amount.

2:37Earnings go up slightly more than prices. Freezing tax thresholds means that in real terms, people are often actually paying a higher proportion of their income in tax. But you're right, it's called a stealth tax because it's less obvious to see. You're still taking home more money because you've had an income rise. But the spending power of the money that you're taking home can be reduced because of stealth taxes. So that's why it's a stealth tax. Yes, exactly. You feel it in your pocket, but you don't necessarily see it on your paystip. In terms of the things that you were sort of lobbying for, campaigning on in the run up to this budget, how successful have you been, Martin?

3:14I got three wins. Go on then, take us through them. Two and a half. So let's go through. The first one is on savings. I mean, in savings, I had a win amongst a lot of losses, but the losses were happening anyway. So I would argue. So what's happening? All the big savings changes come in in April 2027. The big one is that the cash ISA allowance, the amount of new money you can put in a cash ISA each year, is dropping from£20 ,000 to£12 ,000. pounds, the shares allowance is dropping from 20, it's staying at 20 ,000 pounds. So that would mean you have a 20 ,000 pounds allowance, maximum 12K in cash.

3:50So you could put 12K in cash and 8K in shares. Now, when I met the Chancellor recently on this, and this is about the third conversation I've had with senior members of the Treasury, the argument to me has always been, we are not doing this to raise revenue. We are doing this because we believe that young people in this country must be incentivised to invest more than to save, to put their money into the markets. I agree with the diagnosis of the symptoms. We do under-invest in this country. I disagree with the mechanism. I'm not sure cutting the cash ISO limit will get more people to invest. I would like to see more investment education, better guidance and better incentives for investing.

4:31I've suggested an extra boost to people who are putting money in the stocks and shares ISO who are under 40. If you're putting up to two grand in, you get a 10 % boost on your money. That's not happening yet. you never know. So what was the win, is probably what you're thinking. The win, I think, when I was in with the Chancellor most recently, I came back with an argument that said, you are telling me you're going to cut the cash ISA limit to£12 ,000 to encourage young people to invest, but the people who have most money in cash ISAs are older people who you're not encouraging to invest, so that is a perverse policy.

5:02You're going to cut their limits and make them pay more tax, even though you're not actually trying to affect them. And so I said, you need a carve out. And we have the carve out. If you're aged over 65 or older, your cash ISO limit will not be cut. And I think I'm going to claim a little bit because of that. But, you know, there is bad news, more bad news for savers too, because also from April 2027, we're seeing an increase in the amount of tax that you pay on savings, property and dividends by 2%. So let's just explain this. I'll stick with savers. currently most people can earn a thousand pounds a year of interest tax-free if you're a basic rate taxpayer.

5:42Outside of ISAs, cash ISAs are never taxable. Outside of ISAs, higher rate taxpayers can earn 500 pounds a year of interest tax-free. If you earn more interest than that, you currently pay the normal income tax rates of 20 % rate as a basic rate taxpayer, 40 % as a higher rate taxpayer, 45 % as a top rate taxpayer. From 2027, those rates are going up. So this sort of allows it's not working people because this isn't money from work. This is money you've saved. Some would argue they've saved it from work. So they're going up to 22p, 42p for higher rate taxpayers and 47p. So those are the savings changes.

6:18Do you want the next one? Yeah. This is good. I feel like we're ticking a lot off here. Energy. Energy. And I've got details that haven't been announced on energy that I can go through now. So this is on energy bills? Yeah. So people who are listening to me last week, I went ballistic at the price cap rise. The price cap went up 0.2 percent. But underneath that, the cost of every unit of electricity you use has gone up 5.1 percent and gas has gone down 5.7 percent. And the perverse thing about that, that I was very strong on, was the reason the cost went up in the price cap is because it isn't wholesale rates.

6:56The rates energy firms pay for gas and electricity has gone down over the three month assessment period. It's policy costs, debt forgiveness, the cost of nuclear, increasing cost of the warm home discount. So we have this ridiculous, perverse situation. I keep using perverse today. Right. But the government is trying to encourage people to stop using gas for heat pumps and get them to use more electricity. but in this price cap in January we're seeing a 5 % rise in electricity costs and a 5 % drop in gas costs because all of the policy costs are being put on the electricity bill because it's universal.

7:34So policy costs are to get people to use more electricity but they are what's driving up electricity prices and bringing down gas prices. You can see why it's a madness moment. The budget is addressing that. So what we heard today, and it's exactly what I've been calling for, is that the levies on your electricity bill, 75 % of them are going to be shifted to general taxation. Now general taxation is more progressive than energy bills. Energy grills are regressive. If you earn 10 times as much, your energy bills aren't 10 times as high. So that's actually important. They're also getting rid of the eco scheme.

8:09Now the government's numbers are this This will reduce the typical bill from the 1st of April 2026 price cap, everything else remaining equal by£150 a year. I can go into more detail now. I've spoken to a very senior member of the government who deals with this. That's all I can say, but you can probably work that out. Since the budget, we think that the electricity unit rate will drop 3.4 pence per kilowatt hour and the gas unit rate, 0.3 p per kilowatt hour. Now, that will happen on the price cap. What I am most concerned about is that has to factor through to everybody else, including fixes.

8:47Now, what the government has said to me on that is that they will be speaking to its suppliers and it is their intention that suppliers pass on all the savings to consumers in April. If they don't and fixes don't reduce by the same amount, it will be a bastardisation of the market because the government has been encouraging people to switch and to fix and to get off the price cap. So those people must see the same reduction and I'll be on the warpath if that doesn't happen. But the conversation I had today, I'm quite hopeful it will happen and there is a precedent in the energy guarantee and the energy price guarantee.

9:21So those are my two main ones. There's loads more. Oh, two letters, the other one. In the back of the budget documents, there's a very small note on this. I'm sorry about the code, everyone. You can work it out. But when I spoke today to a very senior member of the Treasury, right, that person told me that the Chancellor will be writing a letter to Ofcom on the back of my letter to her about O2 hiking prices higher than it said it would hike them when people signed up, which is an absolute, you know, two fingers up to the new Ofcom code, asking Ofcom to tighten the code. That letter should be going out today.

10:01I've been promised I will be getting a copy of it. So that's another win. Another win. And there's loads more to talk about as well, Matt. How's that for a start? It's very good. In fact, we've had so many messages, Martin. Andy says, why doesn't Starmer sack Reeves and bring in Martin Lewis? He knows what he's talking about. Because Martin Lewis would prefer to wire his nipples to electrodes and not in a fun way than be Chancellor and would never take a party whip. I am not available. You're not available. You're ruling yourself out. I'm also not qualified. You know, the difference between me and the Chancellor, I only think about consumers.

10:31That's my job. I don't have to balance the economy. I don't have to balance the bond market. I don't have to balance businesses. I'm a very I'm a declared biased, a pro consumer biased journalist and consumer journalist and campaigning journalist, if you like. So that's why people like me. If I became a politician, I'd have to look at all the other vested interests and they wouldn't like me anymore. Now, just before I let you go, Martin, in our big budget bingo card, you opted for ISA on the card, which I think helped the guest card slightly because we've talked about the ISAs and changing the rates and all that.

11:03But I don't think your colleagues and the words they chose helped. So we appreciate you joining in, but you were better at picking words than some of the other guests, I'm afraid to say. Well, I don't know those other guests. You know what? ISA was always going to be in there. There's also news on the lifetime ISA, the salary sacrifices, a lot more. Thank you for having me on. And if you want to hear more of the political reaction from today's budget, listen to Matt Chorley's new podcast, Matt Chorley's Urgent Questions, on BBC Sounds. OK, so that was the interview with Matt. Let me start to talk you through a few more things that were in the budget.

11:38We've heard that from April 2029, salary sacrifice on pensions is going to be limited. So let me explain this. some people, the way that you pay for your pension is that you have your salary reduced by your company and the amount that your salary has been reduced by your company, the company then puts into your pension as well as adding its own contributions on top. The reason that's beneficial is both you and the company therefore don't pay national insurance on that amount and that amount often goes into your pension. Now the government has said that from, or the Chancellor has said that from April 2029, the maximum amount you'll be able to salary sacrifice and get the national insurance gain is£2 ,000 a year.

12:23You can still salary sacrifice above that, but you won't get the national insurance gain. So that's a big revenue raiser that's going to be coming from the government. And it will also mean that those people are doing it with bigger pensions are going to see the amount that they're having into their pension reduced. While we're on pensions, Let's just do the state pension. We already knew this from April 2026. It's going to rise 4.8%. That means somebody on the full new state pension will be on£12 ,547 a year, which is up£574. For someone on the full old state pension. So that's someone who hit state pension age before April 2016.

13:05it's going to be£9 ,615 a year, up£439. Now, the interesting thing about the state pension is because of that fiscal drag, because of those thresholds being frozen, and the fact that the state pension is certain to rise because of the triple lock, in the 2027 tax year, There will be people who will be paying tax on the state pension, even if they have no other income. Now, the government and the Chancellor said in the budget that they will ease the administrative burden for pensioners whose sole income is the state pension and who need to pay a small amount of tax. Now, it's quite difficult to read exactly what they mean.

13:49I presume you'll still pay the tax. We don't know the mechanism, how they're going to ease this burden. but I think it's interesting they're starting to think about the fact that the state pension alone will be taxed. Moving on, let's do students next. Students, plan two loans. The threshold at which you repay will be frozen next April until the 2030-31 tax year. So first of all, who is on a plan two loan? It's people from England who started university from 2012 up until 2022 and people from Wales who started university at any time on or after 2012. It is the biggest plan. It's the one that the most people are on for repaying their student loan.

14:39Now, currently, you repay 9 % of everything you earn above£28 ,470. From April 2026, you'll repay nine percent of everything you earn above£29 ,385. That will then be frozen for three years. This is fiscal drag in another name, because in reality, the way student loan repayments work is they're a bit like a tax. You know, you pay a percentage above a threshold. So if you freeze the threshold and your earnings go up and inflation goes up, then effectively you're paying a bigger proportion of your income on student loans. And that is going to be happening. Next one, the end of the two-child benefit limit in April 2026, widely flagged big political issue, totally misunderstood by many people.

15:25So I'm going to quickly talk you through that. Right, here's how it works. What the two-child benefit limit is, and this is what's going, is currently if you get universal credit and you have more than two children, the extra costs from the third or the fourth or the fifth child are not factored into the calculation of how much universal credit you get. It's only the costs of two children that are factored in. From April, that will go so that if you have extra costs due to a third or a fourth or a fifth child, then you will get extra benefit because of it. This benefit limit should not be confused with A.

16:02I feel like I'm doing this writing down. Should not be confused with A. Child benefit, the universal payment that everybody gets, although it is means tested. Of course, if you earn above£60 ,000, it starts to reduce. it's not that. This is only about universal credit. And B, the benefits cap. There is a limit on the amount of total benefits you can get a year. Both universal credit and child benefit feed into that benefits cap, but it's often called the two child benefit cap. It's not. It's the two child benefit limit. And there is a separate thing called the benefits cap, which is the total amount that you can get on benefits a year.

16:37I'm going to leave that there because it's complex and I won't have other stuff I want to talk about. Next one. Lifetime ISAs. I was hoping that, and I talked about in one of the question time pods, I was hoping that we were going to see a change in this budget. We're not. But what was in the small print but wasn't announced is that at the start of 2026, there'll be a consultation for a new first time buyers ISA product that will work in a similar way to replace the lifetime ISA. So I presume the whole pension gain that you get from a lifetime ISA will be disappearing. We don't know when that'll come in because it's a consultation in 2026.

17:14But what hasn't happened and the thing I've been long lobbying for, it's currently on a lifetime ISA. You can only use it and get the bonus if you are buying, and the bonus is 25 % on top of up to£4 ,000 put in, so£1 ,000 of free cash a year. You can only get the bonus if you're buying a property that costs under£450 ,000 and that hasn't moved since 2017 and should have gone up. I was hoping to see it go up to£550 ,000 in this budget. I'd had sort of warm feelings on that, but then again, I'd have warm feelings from Jeremy Hunt and it didn't happen then either. I have had a conversation using my format with a very senior member of the Treasury today.

17:53I'm being told that within the consultation coming at the beginning of next year, they will be looking at increasing the lifetime ISA limit as well as the new product, which I think is really important. I will also be asking that because the lifetime ISA would end up being a dead product, a bit like the help to buy ISA is now, then I think both the LISA and the help to buy ISA, you should be able to port seamlessly into the new product which would be better for everybody who wanted it if that new product has better terms. What else do I have left? The high income property surcharge, that's been everywhere but let's just do it quickly what the numbers are.

18:29It's England only. It worked through the council tax system, but it's a surcharge on top from April, 2028. If your home is worth between two and two and a half million pounds, it'd be two and a half grand a year. If it's between two and a half and three and a half million pounds, it'll be 3 ,500 pounds a year. If it's between three and a half and five million pounds, it'll be 5 ,000 pounds a year. And if it's five million pounds and more, it'll be seven and a half thousand pounds a year. Final thing, if you drive an electric vehicle from April, 2028, there will be a 3p a mile surcharge on top of vehicle emissions duty and 1.5p a mile on hybrids, plug-in hybrids specifically.

19:05Basically, it's saying that people who have electric vehicles, they're not paying the cost on fuel, the tax on fuel, so they want to tax them in another way. And that'll be coming in in April 2028. But we don't yet know how they'll be measuring the mileage, whether it'll be self-declared or whether there'll be a box in your car. So all of that is to come, but it's all the long way away. And I think that's quite interesting on this. As I look down this list, there's a few things in 26, there's quite a lot in 27, there's some in 28, and there's some in 29, and there's a few that go on to 2031. So a lot of the announcements made today will not be coming in place immediately.

19:36Obviously, we'll do a lot more information about them on the pod in the future. Just before I go, though, I did an interview on the Today programme on Friday about energy bills, and the Chancellor has told me that she heard it and agreed with the general context. This was me ranting about the fact that we're putting electricity prices up because of policy and the fact that there are so many policy costs in there and it's regressive. So I don't know whether any of the changes today are actually due to that or they were planned anyway, but the Chancellor heard it and I thought on the back of what's being announced today, a good way to finish this podcast is to play it to you too.

20:16The energy price cap for England, Wales and Scotland this winter will be nought 0.2 % higher from January. It means that a household using a typical amount of energy will pay£1 ,758 a year, which is£3 higher than now. But of course, those figures on their own are, as always, only part of the story, really. So here to give us the full context so you know what they mean for you is Martin Lewis, founder of Money Saving Expert. Morning, Martin. Morning. I'd say they're not even part of the story. They're none of the story. The energy price cap we're talking about only lasts three months. So to give an annual figure is completely nonsense.

20:48I mean, this is a much bigger story than it looks on that headline 0.2 % rise. What's actually happening is electricity unit rates are going up 5%. The electricity standing charge, the daily charge you pay just for the facility of having electricity is going up 2%. The gas standing charge is going up 3%. And the gas unit rate, the amount you pay for each unit of gas is going down 6%. So those people who use more electricity than gas or only have electricity are actually going to see a rise of 3 % to 4 % in January. The average, the typical 0.2 % does not tell the story. And what's really, I mean, just perverse here is the reason we're seeing those costs go up on electricity is not the normal reason of wholesale rates, the costs that gas and electricity firms pay to buy in energy.

21:43That's gone down over the three-month assessment period. These are policy costs. These are the costs of the warm home discount. These are the costs of connecting renewables to the network. These are the costs of nuclear power being put on board. These are all policy costs and network costs. So here we are in a time when the government's policy is to reduce the usage of gas and encourage people onto heat pumps, that what we are doing is artificially putting up the cost of electricity and reducing the cost of gas so that gas is relatively cheaper, which is, of course, clearly a perverse incentive that's going to encourage more people to use gas.

22:25More so, this is a regressive way to pay for policy. Energy bills are regressive. Wealthier people do not pay as much a proportion of their income on energy as poorer people do. So the fact we are choosing to put the policy costs, and this is going to happen even more, the prediction is the 4 % or 5 % rise in April, the fact we're choosing to put the policy costs onto electricity bills, as opposed to pay for the amount of general taxation, which is more progressive, we need a national debate about this, because these policy costs are going to make up an ever bigger proportion of our bills. The wholesale costs, the costs you're actually paying for the energy firms are paying, it's making up a smaller proportion.

23:09And this particular price cap announcement just shows the ludicrousness of the situation. Martin, this is a layman's question, although most of mine on this topic tend to be. Why, if it's policy choices, is there a way that they could not do that in the winter? Because that's when people are using their gas, their electricity, a lot of it goes on heating. is it something that could just be and you've made it clear that you don't think that's the right way to do it anyway but is there an argument for just doing it in the summer months if that's the way they want to do it they're doing it in every month and it's going to go well with the current prediction is going to see a rise of four to five percent in april because of policy costs and it's going to keep going up and you know the likelihood is with the the move that we have towards renewables and improving our infrastructure on energy we're going to continue to see policy costs rise probably until the mid 2030s.

23:54So it isn't a seasonal thing. It's a constant thing. And that's why I think we now need to have a national debate about how we pay for energy policy, because we're paying for it on electricity bills. And as well as the perverseness, as I've said, of the differential between gas and electricity, when that goes against what we're trying to do with policy, we also have to look at the regressive nature of it. I mean, I should do what I do for my proper job, which is tell people what they should be doing right now. Look, these bills are going up 0.2%. The prediction is they're going up again in the April price cap of around 4 % or 5%, and then they're going to stay static after that.

24:27The cheapest fixes on the market right now are 10 % cheaper than the energy price cap. The energy price cap is a pants cap. You should not be on it if you possibly can get off it. I would suggest you get onto a whole of market comparison site, like my Cheap Energy Club or one of the others out there, but I'd probably do it next week because I hear cheaper tariffs are coming in next week. There are people who have to be on the price cap. Those are the people who are on old school prepayment meters because there's no choice. But for everyone else, either get yourself onto a fix or a cheap time of use tariff or an EV tariff.

24:59If you're on the price cap, it's a pants cap and you are paying too much. So you should also get off it. Yeah, just a well shop around. It's always the key, isn't it? Just a very, very, very quick thought. The energy price cap, which was brought in a couple of years ago. Is there still a future for that? Well, until we bring in the social tariff, which is what I've actually always called for. You know, we have a problem in energy. We have to look at who are the legitimate victims of a competitive market. You, Anna, forgive me. If you chose not to switch and stay on the price cap, that's your problem.