What does the Budget mean for you... and how bad was it?

0:02Lee Boyce: Welcome to This Is Money podcast sponsored by Charles Stanley Direct. I'm Georgie Frost and joining me and Simon Lambert today is Lee Boyce. And coming up, the budget. What else? Don't forget, you can stay up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. But first, a message from our sponsors. If you're wondering how the new rules in the budget affect your finances, Lisa Kaplan and her team at Charles Stanley Direct are here to help. Their financial coaching service gives you clear, practical guidance with no jargon and no pressure. So book your free 15-minute call today at charles-stanley.co.uk forward slash financial coaching.

0:39Lee Boyce: Go on, get answers you can trust. Remember, investment involves risk. Now let's get back to the show. So finally, we got the budget this week. Did it live up to the hype? How did it go down with the markets, the public, business? Has it sorted out Britain's finances? Plus, how did the OBR report get leaked beforehand? Simon and Lee are here to guide us through the drama, through all the measures and what they mean for us and our money. But first, Lee, Simon, welcome. A bit of a, as the young 'uns say, a bit of a vibe check. An embarrassing OBR leak, an admonishment from the Speaker of the House.

1:17Lee Boyce: It was a pretty poor start, I think, to the whole affair, which had been going on for a very long time and was pretty poor for all of that time. So briefly, if you would, gentlemen, your overview of the whole event, the vibe check. Simon?

1:33Simon Lambert: The vibe was, in my view, generally chaos. The vibe has been chaos for some time. The lead up to this budget was among the most shambolic I have ever encountered. I wrote about this in my column this week do you remember the pasty tax and george osborne right when he announced that he was going to put vat on hot food from bakeries there was a big backlash against it he had to unwind a load of other measures in that budget as well the general vibe with that budget which was dubbed the omni shambles budget was chaos i think for different reasons the general vibe with this one was chaos too i don't think rachel reese is going to have to unwind things in the same way that George Osborne did, but the months of speculation due to the delayed budget and the supposed black hole that Rachel Rees was going to have to fill, the amount of ideas that were floated, the amount of things that were leaked before the budget.

2:28Simon Lambert: Bear in mind, there was some stuff in that budget that was exactly what had been leaked beforehand. And, you know, they did. I don't want to sound like an old fuddy-duddy and stuff, but there is something in this thing where it used to be that you didn't leak what was in the budget before the actual budget and it was crowned off with the final moment of brilliance which was the leak of the OBR report about an hour before the budget which initially a little behind the behind the curtains moment here initially it was like wow what huh actually this could be really helpful so we're sitting there pouring through it I've got Lee on the other side of the desk going it looks like she's putting 2p on savings interest tax So why would you do that?

3:09Simon Lambert: And then all of a sudden, as everybody in the office is desperately pouring through this to try and work out what's actually in the budget. Someone's like, oh, my God, she stood up and she's actually speaking. So you've got the chaos there for all of the stuff beforehand. The actual contents of the budget, to be honest, there was a lot of stuff in there. There wasn't a lot of the big things that we maybe thought we were going to happen or some of the rumours and things like that. It wasn't as bad as it could have been, to be perfectly honest. but there was so many things in there so much noise so many little tax tweaks and raises here and and I think the problem is is that unless you are really financially engaged and most people aren't okay if you're listening to this then you're going to be much more financially engaged than most people and even then you probably thought you heard a load of noise around it people just hear noise they hear tax rate on savings they hear tax rate on cash ices They hear tax raid on pensions and it just adds to the general doom and gloom.

4:04Simon Lambert: And we've been better off with just the one big tax rise, the simplicity of it, the income tax thing. And I also feel that it just feels a bit directionless. What's the plan? Where are we going? Where's the message? What are we doing? You know, even if the plan was like to dramatically improve public services, if Rachel Reeves stood up and said public services are a mess, we really need to do something about this and we're just going to have to pay for it because we are living beyond our means and I am going to tax the rich and you're going to have to pay for it I wouldn't like it personally, lots of our listeners wouldn't like it, lots of our readers wouldn't like it but at least it would be a message and it would be a plan and it would be a direction of travel so you knew that you were doing something for a reason at the moment we just appear to be drifting and bouncing around and to be fair to Rachel Reeves as I've said before she's only continuing the same policy that the Tories had before her.

4:55Simon Lambert: But if you look at Jeremy Hunt and Rishi Sunak, they at least had the excuse that they were at the tail end of a government that everyone knew was leaving office. Even Boris Johnson was capable of articulating a plan. And I think, unfortunately, this budget just increases the view of a government without a plan, which is embarrassing because they've got a massive majority and they're right at the start of governing and it would really be nice to just sort out the tax system and the economy.

5:23Lee Boyce: Clearly she wasn't reading the IFS report that we covered in a fair amount of detail which said don't over complicate the system and maybe look to sort out the tax system. I'll get into that in more detail but but Lee a vibe check I suppose was it ended up being much ado about nothing to a certain degree for the fact that we'd had so much leading up to it that anything was going to feel a bit like But there was plenty in it that in a few years time is going to hit people, I think. But one thing I do want to just mention briefly was I've heard a lot of criticism about financial journalists ahead of this, getting blamed for stirring the pot a bit too much, basically.

6:02Lee Boyce: And there was a good LinkedIn message from Dan Needle. He's the doyen of tax, basically. Founder of the Tax Policy Associates Limited, basically saying he's really angry about it. hugely damaging to the UK. The exit tax rumours in particular, absolutely indefensible. A surprising number of intelligent people respond by saying that journalists were just causing trouble and making it up. Utterly deluded. I know for a fact the briefings were real. Just had to defend financial journalists there and say we were just doing a job. So sorry. Yeah, I mean, listen,

6:36Georgie Frost: we're in the industry of headlines and trying to make sure that, especially in financial journalism that people are getting the right information what hasn't helped georgia i would say for this budget bearing in mind this is i've been doing this 15 16 years now you know it has been a long and winding road to the budget you know the budget has been late this year it's at the end of november i mean christmas trees are up there shouldn't be christmas trees up when the budget is going on in my opinion and whenever we've asked the treasury to confirm or deny things that have been rumours spreading around everywhere we're just trying to get the answers and unfortunately in the last couple of months when we've tried to get the answers to some of those all-important financial life decisions that people are making we are not getting clear answers if they didn't want to take anything off the table okay fine but it's a long long run up to the end of november to let those rumours really manifest really percolate and there could have been more done and you know next year i mean i'm looking ahead to budget 2026 which is a sentence oh lee give yourself a break which is a sentence i can't believe i'm saying out loud it would be nice next year if it just wasn't as mad the obr league was just like the cherry on top you just think what no way and actually i was so shocked i actually said that we need to fact check that this is actually the obr report and not someone's ai generated obr report that they've put out there to completely baffle the entire country because that's how cynical I am Georgie I was like is this actually real on that point I had a sympathy with Rachel Reeves you know there's nothing like your whole budget being leaked half an hour to an hour before you're about to stand up and deliver the budget um I didn't even you know the first 15-20 minutes a lot of it went over my head what she was saying because I was so busy pouring through this OBR document to sort of see what on earth was in here and also all of the braying all of the noise uh around that budget on wednesday it was out of hand from politicians across all of the parties it was too much georgie it was too much just tone it down calm it down a bit you know these are massive financial decisions that you know aren't being taken lightly but it just feels like it's turned it's always been a bit of a circus but this year it felt like the circus of all circus this is like the biggest circus that's ever rolled into town total embarrassment you know this is us on a global stage you know it's just it does it doesn't look good i'm reading the coverage from canada the first thing it said was the embarrassing

9:08Lee Boyce: leak it was just yeah that's that's the view vibe check so that's the vibe check done before we dig into some of the details of it and how it's going to affect our finances i want to look at the overall picture like what was the chancellor working with here so 38 that's where taxes as a proportion of GDP will be by 2029 to 30 tax year. All-time record, Simon. The impact the budget is expected to have on growth by 2030? A big fat zero. The economy, the general economy, Simon, what was she working with?

9:38Simon Lambert: Well, what Rachel Reeves was working with was not as bad as we thought she was going to be working with. We were worried about the OBR downgrade to productivity and there was a big downgrade to medium-term productivity. The OBR has been overly optimistic on productivity for a long time. Governments have been overly optimistic on productivity for a long time. Productivity is basically a look at how much more productive we are getting for what we do. And the reason why it's important is it's the key to getting richer. It's the key to not just keeping pace with inflation but doing better than inflation.

10:16Simon Lambert: if our businesses can become more productive if our workers can become more productive if our economy can become more productive if our public services can become more productive it means that we can do more with the same amount which means that we can get more from doing the same amount and it means that our lives become a bit better and in monetary terms for an economy it translates into us getting richer and if you're not doing that it becomes increasingly difficult to generate growth. And the reason why growth is looked at as a good thing is because we need to be growing in order to at least keep up with inflation, keep up with the rising costs.

10:56Simon Lambert: You know, there's a lot of spending going on at the moment, as we saw in the budget. For example, you know, pensions are expensive, welfare is expensive. If we ever decided to fix the roads properly, that would also be expensive, and so on. And so what we need to do is we need to become more productive so we can start making the country a better place. The downgrade to that obviously creates an even bigger problem because then all of a sudden Rachel Reeves trying to meet her fiscal rules which effectively are by the end of the parliament she has to meet day-to-day spending from tax receipts without borrowing right we have to be paying our way okay the productivity downgrade was going to make that harder but the overall forecast downgrade from the OBR was minimal and this is because in the words of the ifs report on the budget a of a stonking increase in the forecast for tax receipts stonking is their word not mine great word to use in their report i would say even before the chancellor did anything um with a productivity downgrade receipts were forecast to be 16 billion higher in 2029 30 than previously forecast so that means that she's getting an extra 14 billion of that from higher inflation which is good for the public finances because every tax threshold again ifs words here every tax threshold under the sun is frozen in cash terms this is fiscal drag in full force okay another chunk comes from the obr's judgment that growth will be concentrated in parts of the economy that we tax more heavenly so helen miller of the ifs said that this was lucky for the chancellor we talk about rachel reeves as having been unlucky she likes to talk about the bad hand that she was dealt.

12:40Simon Lambert: I would say, you know, she did campaign to be dealt that hand, but she has been unlucky. But in this instance, she was lucky. The result was only a six billion downgrade in the borrowing outlook. The outcome of this was that basically, she's decided to raise spending, she's decided to raise taxes. And the headroom is going to go from 10 billion in the March forecast that we had earlier this year, to around 22 billion, which is basically a lot better for Rachel Reeves and in theory a lot better for the economy is probably the right thing to do because what it might do is at least stem some of these worries next time round and mean the build up to you know the spring statement and the build up to the next budget etc is less damaging because we are not expecting Rachel Reeves to have to come back and tax us again and really we don't want her to do that because her first budget was meant to be one and done turned out it wasn't one and done the second one raised a load of tax and you know third time

13:38Lee Boyce: i don't think she'll be so lucky lee just briefly simon mentioned markets there um mentioned a lot of things there but markets reaction public's reaction business reaction market reaction has

13:52Georgie Frost: been pretty positive georgia would say that she appears to have passed the initial market credibility test we've seen uk assets rally since it was a bit of a wobble on the day a bit of panic and guilt and that type of thing but on the whole stocks bonds sterling have all had a bit of a rally since the budget it appears that investors are cautiously backing the latest tax raid if the public i mean it depends on your circumstances doesn't it but i mean on the whole there's a lot of ill feeling towards more frozen thresholds as simon was just speaking about there and that tax burden that 38 percent that you mentioned as well i think there's a bit of ill feeling towards that and a bit of ill feeling towards uh people who feel like they work hard and contribute massively to the economy getting stung by things like potentially a mansion tax um more of us getting swept into this uh higher rate tax threshold which you know to be honest was started by the conservatives uh it's just getting further and further and deeper and deeper into the abscess And then in terms of businesses, there's been quite a lot of small businesses that are upset, especially things like pubs and hospitality that are claiming that this budget is going to raise their bills massively.

15:05Georgie Frost: But again, like anything, there's winners and losers on that front. But everything all seems to have kind of calmed somewhat. Does that mean they liked it or it just means they didn't hate it?

15:17Lee Boyce: I mean, is it a big thumbs up?

15:19Georgie Frost: Yeah, I think it's a bit in the middle. I think it's more of a kind of we can tolerate it. Because I think in the lead up there was really gruesome rumours. And as Simon pointed out at the start of the show, he wasn't as bad as what he could have been. And again, as Simon just said, surely the next budget, there shouldn't be a reason for more of a tax rate than the famous last words. But that's what it would kind of suggest from the reaction so far. But we're only a couple of days in. I'm still pouring over documents, Georgie. I'm still looking through things. And, you know, it's complicated some of the things that have been sort of implemented here.

16:02Georgie Frost: So there's still some, I would say, some digestion to be done.

16:05Simon Lambert: I would agree with Lee and say it's definitely option two from the did they love it or did they just not hate it question. If you look at guilt yields, for example, to be fair to Rachel Reeves, she had a very difficult balancing act to pull off here. Because what bond investors, international bond investors, big bond investors in the guilt market indicated the other week, you know, when it emerged, income tax wasn't going to go up. What they wanted was for Rachel Reeves to do the big, simple, add a penny on income tax thing. And that would then show that she's serious about getting control of our finances and she's brave enough to break the manifesto pledge, deal with the political fallout from it and do the right thing for our finances.

16:43Simon Lambert: Once she decided she wasn't going to do that, the question is, is then do we go back to like all of this piecemeal stuff, but like some of the piecemeal stuff that would have been quite economically damaging. and that's what markets were saying that they really didn't like when the income tax thing was taken off the table which is why all of a sudden you had that leak that actually it was because the OBR forecast better than expected it's because the OBR forecast better than expected don't worry don't worry so then she had to go into the budget and somehow raise some money but without with the tinkering around the edges but not do the tinkering around the edges that's really really damaging and so the markets were saying okay all right well you've managed to pull that off this time so yeah we don't hate it but also we don't necessarily love it and if you look at 10-year guilt yields currently at 4.436 percent okay 10-year bond yields in the US 3.998 percent that the US is paying materially less to borrow than we are now you can say that's because you know the dollar is the world's you know global reserve currency all that kind of stuff but France for example France is a financial basket case.

17:50Simon Lambert: There's no polite way of putting it. Their 10-year borrowing costs are 3.411%. They've got to factor in, obviously, that France is part of the EU, so the kind of ECB stands behind it and all that kind of stuff. But even Italy, 3.399%, materially lower than the UK's borrowing costs. And I think we can't say that markets really like what we're doing until we start narrowing that gap.

18:15Lee Boyce: Right then. OK, let's dig into some of the measures, shall we? First of all, though, this was, I'd suggest, more a budget of stealth taxes than wealth taxes. Because while everybody's been talking about income tax, that's the one making all the headlines, of course, frozen for another three years. So 2021 brought in, of course, by the previous Conservative government will be extended until 2030. So we've got income tax, personal allowance, income tax, higher and additional rate thresholds will stay the same. But we've also got freezes to national insurance thresholds, inheritance tax, no rate ban, inheritance tax, resident, no rate ban, inheritance tax, agricultural property relief and business property relief allowance, capital gains tax, annual exempt amount and the student loan repayment threshold frozen.

18:58Lee Boyce: And basically about 66 billion, I believe, is that right? It's been raised across these or will be raised across these last two budgets. 88 % Lee through stealth taxes. I have to ask you though, the manifesto promise not to raise income tax, national insurance or VAT. Now, we played with semantics on raising that for businesses in the last budget. But come on, Lee, is this a manifesto promise break? A stealth tax? Not a rise, technically, but still.

19:29Georgie Frost: I digest the numbers on how many people are going to be higher rate taxpayers by the end of the decade. Almost 10 million people are going to be in higher rate bands. you know more than double from five years ago that's an incredible amount of people that are getting hoovered into i think it's one in four will be in into that higher rate tax bracket and i've got a table in front of me georgie i've actually got the um the obr report the actual physical copy in front of me right now income tax this year 2024 25 305.9 billion 2030 31 426.9 billion that's an absolutely seismic jump in the amount of income tax but the promise was there in the in the manifesto and you can't say she's broken when she hasn't actually done it the stealth instead of wealth phrase that you just used is probably the more accurate way to say it but you know the tax burden that we're undertaking for that 50 000 pounds and above bracket is is huge.

20:32Simon Lambert: Just to put it in context of what it's actually already costing us. So bear in mind that this dates back to 2021. Inflation has been 27 % since tax thresholds were frozen. Where it hits people is, for example, by freezing the personal allowance at£12 ,570. If you are someone who is on£12 ,570 a year, that's your income, and your income had gone up with inflation since April 2021, it would now be 15 ,964. Due to the band not rising with inflation, you're seeing that taxed at 20 % on the gap between 15 ,964 and 12 ,570. If the threshold had gone up with inflation, it would all still not be taxed.

21:15Simon Lambert: It's costing someone£680 a year. £680 a year for someone who's on slightly under£16 ,000 a year is a materially large amount. If you look at the higher rate tax threshold, though, that's where it really hammers people around that kind of level where they've been dragged up into 40 % tax. If you were earning 50 grand in 2021 and your earnings had gone up with inflation, then you'd be on 63 ,500. Now, of that 13 ,500 pounds, if the band had gone up with inflation, you'd have only paid 20 % tax. You haven't. You paid twice as much tax, you paid 40 % tax. So it's costing you at the moment this year, it would be costing that person£2 ,700.

22:00£2 ,700 is slightly more than£200 a month.

22:06Simon Lambert: If you gave someone an extra£200 a month in their pocket, right, after tax, they would definitely feel richer. Hey, I mean, that's like nearly two meals for the family at Wagamama's. yeah but seriously that's like the difference between like in your life choices that's like okay can we go out can we take the kids out to dinner no we definitely can't take the kids out we don't have we don't have the money for it that's like the money that you could save every month to pay for a family holiday once a year it's the money that you could be putting into your pension it might be the difference between you being able to save some money and invest some money every month or not being able to the difference between you breaking even and not It really does make a sizable difference to people.

22:48Simon Lambert: And that is going to continue until 2031. Right. So that's only the effect that we've had that I'm talking about, not the effect that's going to come in the future. It is a massive, massive tax grab on people.

23:06Lee Boyce: It is indeed. And it's interesting that you mentioned that£100 wagamum, as I assume that's related to the article that was written in another newspaper, talking about how much it costs to take a family of four out. And reading some of the comments were just like, wow, is this an article? That's how much things cost now. But that's the reality. Ten years ago or even five years ago,£100 for a family, a casual meal out, would be considered an enormous amount. That's how much prices have gone up. And yet our income, our thresholds have stayed exactly the same. So it really does contextualise how much it is costing us really.

23:42Lee Boyce: Right. It leads us on, though, to pension salary sacrifice. Now, this is often used as a way to avoid cliff edge tax rates, which we have spoken about extensively on this show, particularly something that gets Simon's goat, that brutal 60 percent effective rate between 100 ,000 and 125 ,000. So that's now been capped at£2 ,000, but we're going to have to break this down a lot. So firstly, what is salary sacrifice? How does it work, particularly with regards to pensions? Let's get that out first.

24:15Simon Lambert: Salary sacrifice is when you forego money that would otherwise be paid to you and opt to have it paid into something else instead. And the advantage of this is by not having that money paid to you, you don't pay the tax on it, you don't pay the national insurance on it, and instead it goes directly to the cost of the other thing. It can be used for a number of things, but in most cases, if you use it for something, you will face a charge on it to get the money back because the government says, well, we don't want you buying mobile phones, computers, etc., etc., with salary sacrifice. So we're going to give you a charge on that to get the money back.

24:55Simon Lambert: But there are some things that the government considers a good thing. These are pensions, electric cars and bicycles, broadly speaking. And of those things, you can salary sacrifice money without really facing any penalties. Electric cars, you face a small clawback, small benefit and kind clawback. Bicycles through the cycle to work scheme. That's totally cool with the government. They're up for that. There was talk, though, that they were going to limit people using this for expensive bikes because they said that this should be used for people buying bikes to help them commute to work, not people spunking four grand on mountain bikes or flash road bikes.

25:36Simon Lambert: And I must admit that I do sort of agree with that. OK, it wasn't designed for middle aged men playing Tour de France in the Surrey Hills. It was designed to get people to the station. People are buying bikes that they would never take to the station or never ride to work with this scheme. What I don't agree with is capping it on pensions. Pensions is the important bit here. So when you do that, there's a couple of different ways that your workplace pension scheme could be run. And about a third of workplace pension schemes are run as salary sacrifice. This only really affects people in the private sector with defined contribution pensions.

26:13Simon Lambert: If you've got a defined benefit pension, which is largely in the public sector, you will emerge unscathed from this because your pension just operates differently. So our pension works as salary sacrifice. So I'll explain it from our perspective. So every month, 5 % of my salary goes into my pension. And now that it works under salary sacrifice, I don't ever see that money. It's not like that money is paid to me and then it goes after I've been paid into my pension and then I have to claim the tax relief on it. it just goes I sacrifice effectively five percent of my salary and the company pays five percent of my salary into my pension and then it pays the money that it will match my contributions with I'm in the fortunate position where my employer will pay ten percent if I pay five percent okay so not most many people's pensions aren't that generous okay but lots of people's pensions will match or at least more than match in some way now the benefit to me from doing that is that I don't pay any income tax, but I'd get income tax relief anyway on my pension contributions.

27:15Simon Lambert: But I also don't pay any national insurance on those contributions because money's never paid to me, therefore I don't pay national insurance. The benefit to my employer is that by not paying me the money, my employer also doesn't have to pay national insurance contributions. An employer, national insurance contributions are 15%. So if you add that up across all of the people that a company employs, that's a sizable amount the government has said that the amount that you can pay into a pension and benefit from national insurance contributions will now be capped at two thousand pounds per year from april 2029 so we've got quite a long time until this comes in so what it means is that in the future I could do salary sacrifice of up to two grand and get the benefit of me not paying national insurance but above that I will face a national insurance charge.

28:14Simon Lambert: What it doesn't mean is that I can only salary sacrifice two thousand pounds into my pension. I could sacrifice ten thousand pounds into my pension every year but I'll only get the national insurance benefit on the two thousand pounds of it.

28:28Lee Boyce: And that's a really important point to note because I got a question from someone whose wife puts in 45 % of her salary via salary sacrifice. It's a lot of money, but she had a lot to make up for, which I think is what probably a lot of people do when they start earning a lot more money. Now, he was questioning, should she just put the money into an ISA instead? And I said, I'm not here to give financial advice, right? Obviously. But surely you will still get the benefit from paying less income tax, presumably on your final pot. Is that that's still the case? You just have some more national insurance to pay and it will be quite a substantial amount more.

29:10Lee Boyce: And your employer will pay more and they may not allow you to do that. Presumably it's it's up to the employer to decide whether they give you this. Right.

29:18Simon Lambert: Yes. And so the big concern here is really the knock on effects. So to go back to your question, like take, for example, someone smack bang in the middle of that 60 % tax trap where due to the removal of the personal allowance above£100 ,000 at a rate of£1 for every£2 that you get paid, you effectively have a 60 % tax rate. There are lots of people who are saying, I don't want to pay 60 % tax. So they are salary sacrificing money into their pensions if they can. This is predicated by the idea that people actually have the money spared to be able to do that. Most people would tell you they actually need most of the money they get paid, even if they earn 110 grand.

29:55Simon Lambert: And so they can't actually salary sacrifice that much. But there are lots of people doing this. They will still be able to salary sacrifice that money into their pension because they're not being paid it. You know, they're foregoing it. It's going straight to their pension. They won't face the 60 percent tax charge on it as it stands and under the details that we know. Right. You know, you never know. Things could change. the risk is however that employers decide that due to the extra cost of this due to the extra hassle that they stop offering salary sacrifice to people at which point our theoretical 110 grand earner would have a problem because if their employer stops offering salary sacrifice they won't be able to do it anymore but what they would be able to do was they would still be able to pay more money into a pension, which reduces their net adjusted income, takes them back down below it, and then they'd be able to claim the tax relief back themselves.

30:54Simon Lambert: The other problem with the knock-on effect of this is the concern is that by adding extra costs onto employers through the extra national insurance they're going to have to pay, which is only on the money that, you know, if people decide to salary sacrifice less into their pensions and so on, but this adds up. It It adds up in aggregate that employers might become less generous with their pension schemes. And you might find that our employer, for example, which is generous with this pension scheme, goes, well, we can afford to be a bit less generous with that because it's now become more expensive with us.

31:24Simon Lambert: You know, we're looking at the bottom line. We're very sorry, but we're now only going to offer you, you know, 8 % if you pay 5 % or something like that. And that's the bit that's going to really harm people's retirements. And I think that's the bit that's the problem with this is that we need people to be saving more money for retirement. We need people to be building up better pension pots. The government is actively involved in a campaign to try to get people to save more money for retirement, yet is actively introducing a policy that means they'll save less money for retirement and also makes people think that pensions are in some way being raided and so on.

32:01Simon Lambert: And going back to my point at the top of the show, you know, it's just the kind of the mixed messaging going on here. And there is a risk that you end up with the unintended consequences where people will find that their pension schemes cut back on the money that they'll pay in. And you can make the argument that it's the higher earners who are taking the most benefit from this and lower earners don't get much benefit from it. But if a company cuts back on its pension scheme, all earners suffer.

32:29Lee Boyce: That's it for part one.

32:35Simon Lambert: I'm joined now by Rob Morgan of Charles Stanley Direct for our weekly Investing Explained feature. Rob, welcome to the podcast. On a busy budget week, we have a question here from a reader. Will the cash ISA allowance cut affect my existing savings or are they safe?

32:55Lee Boyce: okay so the cut to the isa allowance for cash is not going to affect any of your existing isa provision at all so whatever you've built up you can keep in cash isas if they're in cash isas also bear in mind that this restriction for under 65s is not going to come in until 27 28 tax year. So if you haven't actually used your cash ISA for this tax year or next tax year, you've got potentially£40 ,000 there to actually put into cash ISAs even before the restriction comes in. And if you are concerned anyway, there are potentially going to be other options.

33:38Georgie Frost: So using a stocks and shares ISA does mean that you're restricted to investments, but there's

33:44Lee Boyce: lots of things that you can put in a stocks and shares ISA which are very low risk anyway. primarily money market funds which are funds that invest in very low risk bonds and cash deposits themselves. So you know if you are taking the first steps into a stocks and shares ISA it's maybe not as scary as you think. Rob thank you very much. Welcome back. Also hit Lee, definitely one for you, savers. A double whammy, cut to the cash ISA limit kill surprise for the under 65s but also a tax hike on savings interest lee lee cash is first i mean god talk about one measure that's been spoken about enough i mean we did know because in the spring statement it did say that they would be taking a look at it haven't they taken a look at it they have now what have

34:34Georgie Frost: they done lee explain oh georgie it was on the table it was off the table it was back on the table it's now firmly cemented into the table so the chancellor has decided to pull the trigger onto a lower annual cash isolator 12 000 pounds that's a huge surprise as you mentioned you know been trialed quite a lot that's coming in from april 2027 i don't know why april 2027 and not april 2026 it's a bit like the salary sacrifice thing 2029 feels really quite far in the future I understand things you know it needs to be implemented and actually I've spoken to savings providers throughout my career here and actually offering ISAs and the red taper that's involved is actually quite a lot more difficult than just an ordinary savings account but the surprise part was the reprieve for over 65s they will be allowed to use the full 20 just to make those ISAs just that little bit more complex they'll be they'll be allowed to use the full 20 ,000 allowance in cash i guess the move was out of fear of the backlash uh that the chancellor would receive from older people that you know don't really want to take the risk of investing and you can understand why we always say that investing is a five to ten year outlook you know over 65s you know don't necessarily want to take have that time frame and or want to take that risk and would rather have their money in a savings account and that's their prerogative and that's what I've always argued about the cash about the ISA in general you know£20 ,000 a year limit is is generous the£20 ,000 limit for the stocks and shares element of the ISA isn't changing so you'll still be able to use that full amount what the Chancellor is trying to coerce people into doing is using that£8 ,000 extra limit well not extra the rest of that limit into investing but I would argue that most people who are financially savvy probably already do that and do a mix of both i just don't think it's going to do what she thinks it's going to do and i think all it's going to do is add some more confusion to a financial product lots of people in britain have got their head around and now it's getting complicated more complicated again um and then there was the second part of this uh which was the bit that caught me by complete surprise when i saw the obr leaked document is the extra tax that's going to be on savings interest

36:55Lee Boyce: I'll get to that in a second, Lee. But just personally for me, and I am cynical, I'm not going to lie, there was enough evidence from experts that said this cash ISA reduction thing is going to do nothing really for investing. So the fact that the savings interest hike came in made me just think two and two together. This is just a move to get more money. It's another sneaky little way. However, I did want to just point something out and ask, get Simon's view on this. right I was watching the speech you know really intently but there might have been a bit that I sort of missed but I said I just want to double check with you that I heard it right because obviously so much and we know this so much of what we invest in in the UK is heavily weighted in America heavily weighted towards tech there was talk about getting the platform providers to make it easier in some way for us to invest in British did I make that up I don't think you

37:50Simon Lambert: that up there was definite talk of investment platform providers in in the budget i've not seen any actual details on this the one thing i would say about this cut is is i think it is damaging because as lee said it adds complexity to something that was simple and also again on the messaging front i would just use one example of why i think maybe rachel reese's messaging may not be quite as clear and pro-investing as she thinks. My wife, who is quite financially engaged and due to her husband, subjected to quite a lot of chat about money at home, asked me last night over dinner, so am I right in thinking that I'd now only be able to invest£8 ,000 a year into a stocks and shares ISA?

38:37Lee Boyce: Why has she done that if she wants people to invest? And this is the confusion. Case closed. So Simon, just to be clear, that 20 limit is staying, 20 ,000. You're just only allowed to put 12 ,000 in a cash ISA. So it's a bit like a LISA where it has its own sort of£4 ,000 limit thing going on. However, am I right in thinking that you can actually just keep money and cash in a stocks and shares ISA?

39:02Simon Lambert: Well, you might discover that that's not the case. HMRC and the government are wise to this ruse. and there's some guidance coming out saying that actually you're not going to be able to do things like just hold money market funds or not going to be able to just keep cash in your stocks and shares isa so there'll be a charge on that as well so there's there's some serious unintended consequences from that to be honest i mean effectively what you're saying to people is you can't move to cash if you're worried about market falling yeah they're telling people what to invest in can't pay money into your stocks and shares isa and then keep it in there and then drip feed in over a period of time they're trying to stop people from dodging the rules but you know we've got a breaking story on this as we're recording the podcast so uh yeah there is not going to be the the get outs that some people are thinking there were wow well we look forward to

39:53Lee Boyce: that i think can i say look forward we'll look out for that one lee let's go back to the um tax rate on savings because it's part of a trilogy shall i say of hikes on unearned quote unearned income so dividends rental income and savings all going up by two percentage points

40:11Georgie Frost: explain yeah so uh currently those taxes that you mentioned the rental income and the savings taxes at 20 14 45 it's going up to 22 42 and 47 uh depending on what income tax bracket you're in it'll mean that for any savings that are held outside of an isa and you're earning interest on If you bust your personal savings allowance, which is£1 ,000 for basic rate taxpayers, it's£500 for high rate taxpayers, additional rate taxpayers get zero. And what that personal savings allowance is, is the amount of interest you can earn before you start facing tax. You're going to be facing a slightly higher tax bill on those savings balances outside of an ISA.

40:55Georgie Frost: So the cynic in you just said, well, surely this is going to be more money is going to head into taxable accounts. Well, that's what the OBR is saying, and it's likely to boost Treasury coffers by another£500 million a year from 2028-29. It already rates in£6 billion a year in savings interest tax receipts. A lot of it is linked, though, to actually savings rates and the rates that you earn. And actually, we have had a fair few years now of savings rates that have actually been good enough to get more people to breach disallowance. but it's going to mean a lot more care and attention is needed with your kind of financial savings planning actually one thing i will point out about that new cash ice a little bit that's coming or two things i'll point out actually first of all there's been the unintended consequences again of uh rachel reed's putting a cash ice up on the chopping block is that people have absolutely cash stuffed uh in this past year lots of people have gone this might be the last year last financial year that i can max out my cash and you know people that potentially might have invested might have gone you know what i'm just going to put it all in cash this year i'm going to park it all in cash because i might not be able to do that next year well we're going to have another financial year in which people can take advantage and cash stuff if they want i wouldn't be surprised if a lot of money is diverted into cash rises which might have otherwise gone into stocks and shares rises um the other thing i'd say is 12 000 pounds a year is still a generous limit really You know, it's£1 ,000 a month is the way to think about it.

42:24Georgie Frost: And that's still a pretty chunky amount for people to squirrel away if you're lucky enough to be in that boat. But it just doesn't look great. And then the other two things you mentioned there is landlords getting squeezed again. The tax that they pay on rental income will be at that 22%, 42%, and 47 % rates from 2027. That's going to be another£500 million a year. jason tebb of on the market says the additional tax on rental income is disastrous for landlords and reform will simply see more and more landlords removing themselves for the private rental sector further squeeze on rental supply lots of other industry experts saying that it could push up rents because basically landlords will just pass on the cost and then in terms of dividends again another two-point increase you said now so basic rate taxpayers have gone up to 10.75 percent higher rate taxpayers 35.75 and then additional rates remaining unchanged at 39.35 that's going to hit investors and entrepreneurs pretty hard and that's going to rake in another 1.2 billion pounds by 27 28 jason hollands of evelyn partners said that these hikes are aimed mainly extracting more cash from the uk small business owners who don't have the option of owning their company shares in a tax efficient isa just more of a tax grab on wealth is essentially what that trilogy is all

43:46Lee Boyce: about georgie i don't want to dwell too much on on the rental the landlord part of it simon but i have about 12 followers on social media and i put up a video about the new rules that are coming in the new renters rights act it's got about half a million views about 500 comments vast majority comments as like this is going to absolutely screw over tenants essentially because more and more landlords are going to leave and this feels like another hit to landlords and also a suggestion because i called it unearned income in inverted commas i'm pretty sure there's a lot of landlords saying we do a we do a job we work hard for that yeah i think the problem is is that there's a lot

44:30Simon Lambert: of evidence that shows that the squeeze that we've been putting on landlords for some time now is not actually benefiting tenants, that actually it's causing tenants more of a problem. And perhaps it might be a good idea to change direction on that, or at least perhaps press pause on it. There are some bits of the renter's rights bill that are good. Some bits of the renter's rights bill that are good for landlords as well as for tenants. But it's certainly the continuing tax squeeze on landlords is not benefiting tenants. It's just pushing up rents and, you know, rents are already high enough.

45:01Simon Lambert: And to go back to the dividend tax thing, like uh not to you know overly label my point about mixed messages and and directionless things but like on one hand we're telling people to invest we're cutting the cash ice limit to get people to invest on the other hand we're increasing taxes on investors like what what are we encouraging investors or are we discouraging investors are investors good or investors bad i'm really confused here and this dividend thing is a is a is a mess because what it's trying to do is is trying to go after people disguising their income who employed through limited companies and they pay themselves in dividends because dividend tax rates are lower but the collateral damage of that going all the way back to spreadsheet fill when philip hammond started cutting the tax-free dividend allowance and actually before that when the when dividend rates were raised but then you got the dividend tax-free allowance the collateral damage has been investors small investors stock market investors and it would have been so simple to not do that it would have been really simple to just have one dividend tax rate scheme for listed companies and one for unlisted companies and then you wouldn't have had the problem where stuff that's trying to target one end is hitting the other and yeah again mixed messages directionless are they good are they bad don't

46:17Lee Boyce: really understand here all i can say to make you feel a little bit better simon is right at the start of the season right when derby were losing i said you know what's the plan here we looked on the pitch it was rubbish and now they're eights in in the championship you know let's aspire to those sort of those sort of heights simon that sort of level of plans coming together sorry about that lee i just thought i had to go there i thought there was more of an inspirational story i had in mind there than than what actually came out at the end but anyway i want to talk about the only sort of real wealth tax that we got was in the form of a mansion tax is what it's been called.

46:54Lee Boyce: It's actually rather snappily titled the high value council tax surcharge. That is hard to say after you've been speaking for a very long time about the budget. That comes in in 2028. Again, all of these measures, many, many years hence, will affect homes over 2 million. Now, the reason it's coming in in a few years is because basically the valuation office have been handed this rather onerous task. They're the ones that deal with council tax and they've not dealt with that for a fair few years so they'll be sorting this out expect i imagine many appeals on this one lee

47:24Georgie Frost: how will this work i'm laughing georgie because uh that mouthful that you just came out with when when she said it in the budget no wonder it's been called mansion tax that is an absolute mouthful yeah so you're right again it's another long way down the line but i guess it's to get all the ducks in a row to actually you know make this work um so owners of properties identified as being valued over two million pounds uh in 2026 prices will be liable for a recurring annual charge on top of council tax it will be two and a half thousand pounds on top of your council tax bill for a property is worth two million to 2.25 million properties valued from 2.5 to 3.5 will pay three and a half thousand properties valued from three and a half million to five million we'll pay five thousand uh and then the final band uh five million pounds or more seven and a half thousand pounds now being told that there's a probably approximately 100 to 150 000 properties for to be directly in the firing line um that's quite nasty for people isn't that's a massive amount of money for people to find you know i get it it's kind of it's rich people problems you know if you are if you're in a house that's worth more than two million pounds well you know you can afford it but i'm not being funny georgie but it's quite likely that these people have already been taxed on this property in the form of a very high stamp duty bill uh quite possibly it just feels just a little bit nasty let's try and soak the rich you know instead of tackling what the real problem is is the fact that a lot of properties are for council tax reasons are valued at 1991 prices and really what needs to probably happen is a massive overhaul of it all but that is a seismic headache for any chancellor for any government effect to achieve will just be so difficult instead it feels like just another sort of add-on to be kind of like yeah we can do it because we can.

49:25Georgie Frost: I personally just think it's like another tax on aspiring to basically own a nice big house. It's not a problem I'm going to face, but it just feels nasty is what I'm trying to say.

49:36Lee Boyce: You say that, Lee, but, and I could be wrong with the figures here. I've just done a quick Google search. House prices over the last 10 years, I think have increased by about 50%. So I know that they said that this would be going up every year in line with inflation. We've heard that one before, haven't we? So there's a part of me that thinks that I don't know this will ever come in because they're going to be having a consultation. Simon's a bit dubious about this. They're going to be having a consultation about how this will impact those who are particularly asset rich, cash poor, older people who are in these homes, the effect it's going to have on the market, that sort of thing.

50:12Lee Boyce: Also, one thing is this impacts landlords, not tenants. So going back to the landlord thing, And we've got an increasing number of houses of multiple occupancy. I wonder how that will impact on those houses. I mean, it's just things that I've been thinking about. This, to me, just feels like if we can't sort out the council tax banding since 1991, how on earth are we going to get this done in time for perhaps the next parliament? And then I imagine if any other political party comes in, they'll just scrap this.

50:41Georgie Frost: I think they think it's a simple way to raise money.

50:45Lee Boyce: They don't raise that much.

50:46Georgie Frost: how much is it 400 million that was going to be my kicker i think they think this is going to be an easy way to implement something that makes it look like they're doing something to get people that are in expensive houses to pay their fair share those with the board with the shoulders and all of that kind of jazz that's been kind of built up into this budget but then figures since then have suggested that the knock-on effect that this is going to have is probably going to cost the treasury in the short term in lost transactions in terms of stamp duty again let me get my let me my book out here uh george i've got here property transaction taxes 15.2 billion for this financial year 2030 31 28 billion that's where the real money line is the stamp duty uh nonsense and actually what i'm here council tax 47.4 billion this financial year by 2030 31 66.7 billion it's a drop in the ocean i agree i i wouldn't be surprised if this is the pasty tax of this budget

51:42Simon Lambert: Simon? I think it is a uniquely bad idea the amount of money that it raises you know when we talk about the amount of money something raises being a rounding error this isn't even a rounding error in terms of like total tax receipts and total government spending it is absolutely minuscule and the bad sort of headlines and feeling generated by it is not worth the money that's raised now you can look at this from one perspective with people going, ha-ha, yes, we're taxing the rich. We support doing that. But that's only within a certain chunk of society that we support doing that, right? A lot of other people just see this as the politics of envy and things like that.

52:22Simon Lambert: But the bigger problem is that this is seen as the thin end of the wedge because people are not stupid. You introduce a new surcharge for homes above£2 million, right? And it starts at homes above£2 million. And you need a bit more money. so you're like just drop that to 1.75 yeah let's drop it to 1.5 1.25 million pounds all of a sudden you've got a charge on homes that are more than a million pounds you can argue that that won't happen but all of the evidence with taxes in the past in the recent past points to that happening stamp duty until gordon brown started messing around with stamp duty it was a flat one percent on homes above£60 ,000.

53:07Simon Lambert: And then he started messing around with it. And then he couldn't kind of resist adding in a few extra bits to raise a bit more money, a few more higher thresholds, a few more higher thresholds. George Osborne did the same. And we end up with this tax system that's a massive mess. Now, in Gordon Brown's defence, lifetime allowance was introduced at£1.8 million by Gordon Brown. And then it was the Tories who started chopping that one, chop away, just bring it a little lower, bring it a little lower, bring it a little lower. And that's the concern that will happen with mansion tax. then you've got the valuation thing i mean jesus i'm pretty sure that the spread of properties above two million pounds it most of the properties are closer to two million than they are to the five million so you're just going to end up with endless amounts of challenges of people going my house is only worth 1.9 million pounds you've said it's worth two million pounds but actually the local market the condition it's in recent sales all that kind of stuff this is going to be an absolute growth industry for people doing valuations on homes around the two million pound mark okay so you're going to get that you're going to get loads of challenges and then also you've got the fact that councils have come out against this the local government association pete marland of the local government association put out a statement the other day saying council tax needs comprehensive fair reform and local government is ready to work with the government on this this surcharge should not create confusion over accountability with councils likely to be blamed for a charge that is not theirs.

54:32Simon Lambert: Now, he's trying to not be too, like, overly aggressive with his criticism there, but you can read in that quote this kind of thing from councils going, oh, great, we're going to get lumbered with the blame for this, and we're not even getting the money. And then there's stories today about, like, people spying on you with drones to work out how much your house is worth and stuff like that. It's Angela Rayne taxing your shed all over again.

54:58Lee Boyce: All right, from our homes to our cars, Simon, electric vehicles will get a new pay per mile tax. An electric vehicle excise duty charge will be introduced from April 2028 to plug the fiscal hole created by lost fuel duty. As more drivers switch to battery powered cars, which talk about mixed messages. I thought that's what they wanted. It's predicted to raise just under two billion for the Exchequer's coffers by 2030. so Simon please don't say they're going to start putting telematics in our cars and monitoring

55:29Simon Lambert: everywhere we go yeah you're gonna have a drone flying above you checking I mean drones yeah could be no they're not going to make everybody put telematics boxes in their cars but unfortunately that's probably what they need to do to do paper mile charging paper mile charging has been on the cards for a really long time now the previous government looked at it people have spent a long time looking at it which means that the detail around this is a little bit embarrassing the stuff in the budget because considering the amount of work that's gone into this it's a bit kind of full of holes like a piece of cheese and i will let lee fill you in on a little bit more of that because he watched a wonderful piece of television uh this week that he can tell you about but the only thing i would say is the difficulty is really to do this properly you need to be able to track people's mileage in their cars the government doesn't want to do that because they'll get accused of big brother privacy all that kind of stuff and they're still smarting from that half-baked plan to bring in digital id cards that they're still sticking with so to come out in the budget are after all of the build-up we've had and say yeah guys actually we're gonna have to put something in your car that tracks you wouldn't have been popular so they're not going to do that instead they've come up with another idea and i will hand over to my colleague

56:38Georgie Frost: mr boyce now yeah it's all just going to be it's just going to be down to you just to submit uh how many miles you've done that year like a self-assessment tax form yeah a mileage self-assessment well actually on on thursday morning i yeah i was just a bit budgeted out i kind of i decided to leave for work about half an hour later than usual i just needed that little bit of extra time before i'd see the kids you know just being a bit neglected this week big bad budget as you know coming to family life well actually my 18 month old has got obsessed with the remote control and she pressed on the tv and it was charlie state at the bbc interview with rachel reeves i'm actually not sure where she was but i caught about 90 seconds of it and he was asking how evs uh within the first three years of a new car because you don't have an mot on the first three years so you know you wouldn't necessarily know what the mark you know there's no official tracking of what the mileage is how they would implement it basically rachel reeves had absolutely no idea how to answer and her response was well by the time it comes in 2028 we've got we've got three years to you know devise how it will work yeah but people can see on their dashboard how many miles they've done and they can input it and i just thought i don't actually think she really knows someone else has suggested this she signed it off and i don't think she quite grasped the concept of mot how a new car works and how this is going to fully fully work it's rocked the industry somewhat i would say you know it's again it's mixed messaging they've launched a grant this year for people to go electric and electric cars are a big commitment you know they're a lot more expensive typically than petrol equivalents if you haven't got home charging you know you're probably not going to get anywhere near the big savings that you know that you could get so you really do need to have a home charger even still now is a massive difference but then also at the same time you're now getting told you're going to be charged per mile and i just think people see that as a big brother move and just don't like the sound of it it's a hard one though because you know the treasury are going to be losing out on a lot of money from fuel duty as people make the switch and it has to be filled somehow and if not doing that then how and i guess that's why they've they've pulled the trigger on it um right so i'm just

58:59Lee Boyce: going to do a quick fire some of the things that were mentioned in the speech some of the things were mentioned actually in the budget document. Obviously, it's not through weighting of importance. It's just if we kept talking, we'd be talking all day and people have got things to do, including you listeners. So two-child benefit cap, that was scrapped from April 2026. Another consultation into the Lysa to simplify that. Energy bills reduction of 150 quid. Helps save, made permanent in a few years. Fuel duty frozen. Is it the 15th here, Simon? I've lost count. Plus apparently more transparent pricing on the full courts.

59:36Lee Boyce: National living wage increased to£12.71 an hour from April 2026. Stamp duty reserve tax exemption for new listed companies three years post-listing. A US-style whistleblower reward scheme for tax fraud. And finally, just want to find out, is there anything that we can do to budget-proof our money?

59:55Simon Lambert: Yes, there is. The best thing you can do to budget-proof your money is to pay attention to it. don't let this stuff pass you by obviously you've listened to an entire podcast about it by the time you've got here right but it's still i tell you what it's still very easy to listen to an entire podcast about something and then not do anything about it it's very easy to write about this stuff be on podcasts and talk about it and talk to people all day long about it and still not do nothing about it okay i am the greatest example of knowing what i should do and then not doing it It's what people do.

1:00:27Simon Lambert: We're busy. We don't have time. We're out there earning money, paying tax, doing all the things that we need to do to help keep the economy afloat. Spend some time looking after your finances. If you sat down and made a checklist of the things you need to do and plan to do it over the next three to six months, you could tick off a load of this stuff and sort it out. So pay attention to what you're doing with your money. That is the most important thing that you can possibly do. Quite. Finally, Simon, do I have a stat of the week from you? Yes, one pound. That's my stat of the week. That is the price that I paid for a flight because I finally booked a flight with some Avios.

1:01:08Simon Lambert: Yes, after all those years of talking about it, regular listeners will know that I am an absolute idiot who has a BA Amex card, has been collecting Avios for years and occasionally not paying his bill in full and therefore incurring interest charges that far outweigh any benefit I will ever gain from the Avios, which was none until this week when I finally, after all these years, booked a flight with some Avios and after paying for it with 19 ,000 and something points, I only had to pay one pound in cash.

1:01:40Lee Boyce: Simon, you are an inspiration to me with my 300 ,000 points that are just being racked up and not doing anything with it. So thank you. Inspirational, Simon. Right, that is it. Where are you going, by the way? Anyone exciting?

1:01:55Simon Lambert: My wife is flying to Munich one way. Oh, she's not coming back.

1:02:02Lee Boyce: This doesn't sound like the positive conversation that this could have been.

1:02:06Simon Lambert: This is because this is part of a wider trip. My flights are already booked. She's flying. We're flying back with Lufthansa because it's only the flights out there that we're taking with BA. So I only needed to book one single one way flight. I've not used my avios to just send my wife to another country. and not have her back.

1:02:25Lee Boyce: Anyway, sorry. Thank you very much for that, Simon. I'm sure you haven't just sent your wife one way off to Munich, never to return. You can keep up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. And if you have any comments or questions, Steve, or anything you'd like them to look into, Simon.

1:02:40Simon Lambert: Email us at podcast at thisismoney.co.uk. And actually, a shout out here for listeners. If you've got a question for Steve Webb, a pensions question for Steve Webb, send your questions in. just email them to podcast at thisismoney.co.uk we'll pick them up there but send Steve your questions he wants some more questions from our listeners on the podcast and you can come to thisismoney.co.uk to find all podcasts past and join in the debate and read the comments

1:03:06Lee Boyce: and if you like our podcast why not rate us wherever you found us helps other people find us too