The Chancellor wants everyone to do their bit for Britain. But what became clear as Rachel Reeves delivered her second Budget to MPs and the country was that people stuck in the middle will foot the bill: millennial, middle-class, middle-aged, middle earners are being asked to contribute rather a lot more than everyone else.
From the long-awaited and much-needed end of the two-child limit (costing £3bn a year by 2029) to the fact that the triple lock on pensions (due to cost £1.4bn more a year by 2029) is going absolutely nowhere, Reeves is looking to working age adults – the very same generation who have been hammered by expensive housing, expensive childcare, student loans and relatively stagnant wages since 2008 – to pay for her Budget.
Credit where it’s due. Today, Reeves managed to pull off something which, on paper at least, her critics – many of whom come from within her own party – said would be impossible. She met her own fiscal rules, avoided a return to austerity and didn’t break Labour’s manifesto pledge that there would be no income tax rises.
In reality, however, the Chancellor’s tax threshold freezes mean that working-age people on middle to high incomes will be paying more tax in years to come; as their wages rise, the amount at which higher rates kick in will not. Indeed, by 2029-30, there will be 780,000 more basic rate, 920,000 more higher rate, and 4,000 more additional rate taxpayers by 2029-30.
Those earning between £50,000 and £125,000 will therefore be hardest hit. It’s worth noting that these workers will also be the ones paying the most back on their student loans if they paid tuition fees.
In practice, what Reeves’s tax threshold freezes mean is that people in their twenties, thirties and forties – the same generations that the Chancellor is looking at to have children, to work hard and generate growth – will have less money in their pockets to go out for dinner, go shopping, pay for childcare (if they earn more than £100,000 and don’t qualify for state support), invest and buy homes.
Far from addressing the putrid intergenerational inequality that has set in in Britain, Reeves’s Budget risks further entrenching it by asking young adults to pay for lifting the most vulnerable children out of poverty and securing the incredibly generous state pension.
At the same time, this demographic of young adults in work has had the amount they are allowed to save tax-free in a cash ISA slashed from £20,000 to £12,000 a year, while pensioners will retain the £20,000 allowance.
Worse still, changes to stamp duty, which were tested by the Treasury over the summer, did not materialise in today’s Budget. More’s the pity, because this was a genuine opportunity for Reeves to help young adults into homeownership. This regressive tax penalises people who are trying to move into a larger home as much as it disincentivises older people from downsizing and freeing up homes for younger, growing families.
And stamp duty reform was not the only missed opportunity to rebalance the boon that house price inflation has been to the baby boomer generation. Reeves had been rumoured to be considering a major overhaul of Britain’s council tax system, which is based on property valuations from 1991. Instead, she opted for a softer approach and will only introduce a surcharge for homeowners with homes worth more than £2m, AKA a “mansion tax”.
In doing so, the Chancellor has failed to do anything about the fact that people who, say, bought a home for £200,000 in the 1990s and now find it is worth as much as £800,000 or £900,000 – people who are now in possession of huge asset wealth through no great effort of their own – are seriously undertaxed.
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Millennials, in particular, will be forgiven if today they feel that Reeves’s Budget is unfair. It is. A generation that came of age after the financial crisis, lived through austerity and then entered their thirties and forties in the post-pandemic years of inflation and interest rate rises is right to feel hard done by in comparison to their elders, some of whom became millionaires due to house price inflation.
Reeves is going to tax this group more to pay for additional spending on pensions and benefits for low-income families with multiple children. That’s not to say she’s wrong to lift those vulnerable children out of poverty and improve their life chances; she’s absolutely right to do so.
But, equally, the middle-class, middle-earning millennials who are delaying parenthood because they’ve been caught in a “rent trap”, unable to buy a home, may reasonably wonder: who is coming to save them, and when?
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