Feeling the strain of rising costs? The new UK budget, introduced by Chancellor Rachel Reeves, brings significant changes that many families are grappling to understand.
From National Living Wage increases to transport fare caps and adjustments to benefits, these updates may seem overwhelming—but they don’t have to be a setback.
Here’s a breakdown of what these shifts mean for everyday families and strategies to adapt and optimise your finances under the new provisions.
1. Tax Changes: What’s New?
Tax adjustments are an integral part of the new budget, with implications for households across various income levels.
Income Tax Threshold Freeze Until 2028
The freeze on income tax thresholds will now remain until 2028. With inflation-driven wage increases, many households may shift into higher tax brackets, effectively increasing their tax burden. Adjusting your finances to anticipate this change can help minimise its impact.
Capital Gains Tax Increase
Capital Gains Tax (CGT) rates have increased: the lower rate moves from 10% to 18%, and the higher rate from 20% to 24%. Families receiving income from asset sales should factor in this immediate change, though the residential property CGT rate remains stable.
2. Rising Costs and How the Budget Addresses Them
The rising cost of living is a major concern for families. To help manage essential expenses, the government has introduced several initiatives.
National Living Wage and Minimum Wage Increase
To support lower-income households, the government announced that the National Living Wage and Minimum Wage will rise starting from April 2025. The new rates will apply across all age groups, which means that families relying on minimum wage income can expect a boost in their earnings.
Source: GOV.UK
Household Support Fund Extension
The Household Support Fund and Discretionary Housing Payments have been extended until March 2026. These grants assist families in England and Wales with housing costs and managing the rising cost of living.
3. Support for Families with Children
Families with children face unique financial challenges, particularly regarding childcare and education expenses. The budget includes provisions to help alleviate these costs.
Childcare and Education Support
Increased funding for early years childcare aims to reduce fees for parents, while the expanded free school meal program will provide crucial support to families with school-age children.
Child Benefit Increase
Effective April 2025, the budget will raise Child Benefit by 1.7%, providing additional financial assistance to eligible families. Although this increase is modest, it offers crucial support to families navigating higher costs in other areas. Families can use this extra benefit to cover essentials, invest in savings for their children, or balance out other rising expenses.
4. Benefits Increases and Adjustments
Other benefits have been adjusted to provide additional support for those facing financial challenges.
Carer’s Allowance Changes
The earnings threshold for Carer’s Allowance will increase to £195 per week from April 2025, up from £151. This change offers greater flexibility for carers to earn additional income without losing access to the benefit.
Universal Credit Debt Repayment Limits
A new Fair Repayment Rate caps debt repayments at 15% of the Universal Credit standard allowance, potentially leaving households up to £420 better off annually. This change provides relief for families managing debt, helping them retain more of their benefit income to cover living expenses and potentially reducing financial strain.
Image: Freepik
5. Boosting Savings and Financial Security
Building financial security is increasingly important, and the budget includes changes to support savings and pensions.
Pension and ISA Limits
Pension Credit will rise by 4.1% from April, and the Basic State Pension will increase by the same percentage, up to £230.25 per week. Meanwhile, ISA limits remain frozen, with an annual cap of £20,000, allowing savers to continue using tax-free savings to build wealth.
Help to Save Scheme Extension
The budget extends the Help to Save scheme until April 2027. Available to Universal Credit claimants meeting minimum earnings requirements, the scheme offers a government bonus on savings, encouraging low-income households to save.
6. Additional Adjustments for Homeowners and Commuters
Housing and transport costs remain significant expenses for many families, and the budget introduces some changes in these areas.
Stamp Duty for Second Homes
The budget raises the Stamp Duty surcharge for second home purchases to 5% in England and Northern Ireland. This increase may help reduce demand for additional properties, which in turn could ease housing pressures and facilitate easier access for first-time buyers.
Fuel Duty Freeze
The freeze on fuel duty until March 2026 provides stability for drivers amid ongoing market fluctuations. However, families should still prepare for potential future changes in fuel prices due to external market influences.
Transport and Bus Fare Caps
Single bus fares in England have been capped at £2 since January 2023, and the budget has extended this initiative, though fares will increase to £3 per journey from January 2026. Greater Manchester will maintain the £2 cap through 2025, helping local families save on transport costs.
Practical Tips for Navigating Budget Changes
With adjustments to earnings, savings, and costs, it’s essential to strategise for financial stability under the new budget. Here are some actionable steps to consider:
-
- Check New Wage Rates: Ensure your employer is prepared to implement new rates by April 2025.
-
- Optimise Energy Savings: Reduce consumption by insulating your home and choosing energy-efficient appliances.
-
- Plan Around Transport Fare Caps: Use fare caps or monthly passes to maximize savings on regular commutes.
-
- Review Tax Strategies: Adjust plans for income and asset sales in light of tax threshold freezes and CGT rate hikes.
-
- Apply for Childcare and Meal Support: Take advantage of tax-free childcare options and expanded meal programs.
-
- Update Benefit Claims: Review eligibility for increased Carer’s Allowance and debt repayment relief.
-
- Maximise ISA and Help to Save Contributions: Fully use ISA allowances and consider the Help to Save scheme if eligible.
-
- Consider Financial Support Options: For additional support, consider a low-interest family loan to help manage rising costs and maintain financial stability.
Guiding Your Family Through Financial Shifts
The new budget introduces significant changes affecting incomes, benefits, and everyday expenses. With a clear understanding of these updates, you can turn them into opportunities, ensuring your family’s financial security.
For additional support, Clockwise Credit Union offers affordable loans, secure savings options, and ethical financial services that reinvest in the community, helping you make the most of your financial resources.
