Money Box Live: Budget Breakdown

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Hello. While the budget is out of the briefcase, we were told it would be painful. But what do the Chancellor's decisions about the public finances mean for your personal finances? That is what we're going to find out. out in this special Moneybox Live. And we want your questions as well. But first of all, here are the headlines. The Chancellor announced there would be the initial pain.

there were some things that would stay the same. There will be no higher taxes at the petrol pumps next year. And Rachel Reeves said this would be the gain. Change must be felt. More pounds in people's pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all. Because that is the only way to improve living standards. And the only way to drive economic growth is to invest, invest, invest.

Well, if you have a question about what it all means for you or a comment, then please do get in touch. You can send us a WhatsApp message. The number is 03306. 783 183. Or you can email us. It's moneybox at bbc.co.uk. All questions and comments welcome. And answering those questions today are Dr. Arun Advani, Professor of Economics at the University of Warwick. And Kirsty Stone, a partner at the Independent Financial Advisors, the private office. Good afternoon.

Hello. Thank you both for being with us. Kirsty, we just heard there a budget that promised to raise 40 billion quid in taxes, but also put more pounds in people's pockets. Has she pulled it off? I think she's certainly gone a considerable way in aligning the...

tax regime to what their manifesto was. I think the increase to employers' national insurance alone is claimed to raise £25 billion, which is a good dent on that £40 billion target. I feel like we'll be hearing from employers in the programme. Aaron, was there anything that you would describe? as a rabbit out of the hat.

Not really, actually. I think I guess the closest to a rabbit that we got was that people expected that there'd be a continued freeze in the allowances that you all have on your taxes so that as your incomes rise just because of inflation, you would end up... getting into higher tax brackets. And actually she said she was going to end that freeze so that although it will still continue for a few years, it won't continue.

towards the end of this parliament. We love talking about fiscal drag on this programme. We will get into that and everything else. But it has been 117 days since Labour took office. And we were wondering if that wait gave everyone time to fret.

to Cheadle in Stockport to find out how people were feeling about their finances. Here's Lisa and Hilda who were feeling a bit gloomy when we caught up with them earlier in the week. we were just talking about retiring actually i think even if we want to retire we'll have to wait because i think this budget is going to rinse us the tax-free threshold for your pensions i think the

expectation to work longer until you drop and not enjoy any of it. That's what worries me and we're sort of on that cusp. We've paid for everything. We've saved for everything. And then you get a kick in the teeth. There's nothing sure as taxes and death. They're the only two things we can guarantee in our lives, aren't they? Death and taxes, Kirsty. I mean, clearly they were expecting quite a lot of pain. Was it as painful as expected for ordinary people?

Actually, no. I think actually the budget itself was good for working people in one sense. As we've said already, those income tax thresholds are not going to increase. So people with a higher level of income from pensions or salary won't.

feel the benefit of this budget for a few years. However, they've certainly not made it worse for working people or pensioners. Well, Labour says these decisions have been made in part to fill a £22 billion black hole. It says the Conservatives left in the public... finances. Here's what the leader of the Conservatives, Rishi Sunak, said when he stood up in Parliament after the Chancellor.

Britain's poorest pensioners squeezed welfare spending out of control and a spree of tax rises they promised the working people of this country they would not do. National insurance, up. Capital gains tax, up. Inheritance tax, up. Energy taxes, up. Business rates, up. First time buyer stamp duty, up. pensions taxed up. They have fiddled the figures.

Well, we are focusing on the impact on people's personal finances, but there will be plenty of analysis of the politics of today's budget on Radio 4, including in PM at five o'clock today. Right, there was a lot in that speech. We're going to take it one issue. at a time and one thing our listeners get in touch with us about quite a lot is inheritance tax so let's hear from Lisa again

Inheritance tax, we've chosen to give our children theirs while we're alive and use it. But we've not given as much as we wanted either because we'll need to live and it will be hard. Kirstie, it's a tricky one, isn't it? It's often called the most hated tax and actually only a small number of people end up paying it. The Chancellor said 6% of estates will pay it this year. We've heard in the inbox from a lot of people worrying it was going to go up.

What has changed? So what they have said is that that freeze of a million pounds, which can be passed on to your beneficiaries, your children or grandchildren, free from inheritance tax, will continue to be frozen until 2030. So that 6% of people that are... falling into that inheritance tax, we may see that increase just from a fiscal drag. Sorry, just when we say a million pounds, so it's the first £325,000 of any estate.

can be inherited tax-free. That rises to half a million if the estate includes a resident that's being passed to direct descendants like children or grandchildren. And if it's being passed, shared with a surviving spouse or civil partner, that's when it rises to a million pounds. That's exactly.

right so a married couple with a home a property they own can pass up to a million pounds free from inheritance tax but i think one key change that most people might not realize is that personal pensions or defined contribution pensions previously

fell outside of that calculation so weren't subject to inheritance tax. What we have seen is that on death a pension will now be subject to inheritance tax which is quite a big change and we might see a lot more people falling into that inheritance tax. expand moving forward.

That is quite a big change because while people don't sort of see their pension pots necessarily in the same way they see their house or their other kinds of savings, for most people, that's probably going to be the second most valuable thing that they have. Yeah, absolutely.

Government's doing everything they can, or at least historically has, to try and encourage people to save into a pension. But for those wealthiest individuals in society, what has been happening is your pensions have simply been untouched unless they absolutely need to be touched because they weren't paying inheritance tax.

So there is an argument to say spend it in your lifetime and gift it in your lifetime if you can. Aaron, the latest figures show that the government received a record £7.7 billion from inheritance tax in the 12 months to July. Now that was up more than £5. percent on the year before. Kirsty's making the point that with pension pots being moved into inheritance tax, that's going to affect more people. How many do you think might be dragged into paying inheritance tax because of that change?

next couple of years it won't have a huge impact it'll go from currently about six percent of people paying it to maybe still probably less than seven but somewhere of that sort of order of magnitude over time it will get larger because there are more people who will be getting uh to a kind of older age is the point where they're eventually dying where they have actually quite large pension pots built up partly the question will then be how many of them will then continue to get to

death basically holding onto those pension pots and how many of them will say actually in that case it doesn't make sense to save this particularly as a special asset for my children I'll spend out of it which is the reason we were giving it a tax break in the first place and in that case it may not end up having as large an impact as it looks like it would have if you thought people wouldn't change their behaviour at all. Thank you. Kirsty, we had...

There have been rumours that there might be a change in the amount that could be taken out as a tax-free lump sum from your pension on retirement. But no word of that in today's speech. No, I haven't looked through the full manifesto. I haven't looked through the full policy, but it doesn't appear.

the detail so they always hide something but it does appear that there hasn't been a change and I think this is a A lot of panic was caused as a result of speculation around this and it just proves please don't make any huge financial decisions based on speculation but hopefully untouched from what I've read so far.

There is lots more that inevitably comes out in the paperwork, including ISA allowances. They're confirmed to 2030. There had been some speculation that they might also be cut, but no, confirmed to 2030. Now, during the election campaign, Labour promised no run.

in employee national insurance. We learned today that employer national insurance contributions would be going up from 13.8% to 15% from April next year. And this is where a lot of that cash is being raised. says that will raise £25 billion a year for the government. And on top of that, the threshold at which businesses start paying national insurance on workers' earnings will be lowered from £9,100 to £5,000.

Let's speak to Frances. Frances is a new mum who's just gone back to work at the coffee shop she owns. Frances, hello. Hello. Thank you very much for being with us. What does this change then mean for you as an employer? Well, it's obviously a rise in national insurance. And for the hospitality industry in particular, I suppose we employ a lot of young workers. So the reduction to be below the threshold to the five.

thousand um does make a difference but because we're a small business it sort of works out even because the increase that we will be paying is then taken away with the um extra relief that we're given. So it used to be 5,000 relief for a small business employment allowance and now it's 10,000 and it's going to...

cost us roughly the same amount in the increase. So thankfully, it works out as cancelling each other out. This is interesting. This is the employment allowance that allows eligible employers to reduce their annual national insurance liability. And as you say, that's going up from five grand... to £10,500. The Chancellor says that means 865,000 employers won't pay any national insurance at all next year. So, Frances, do you feel like that kind of evens things out for a small business like yours?

Yes, absolutely. I think it's probably there's a sweet spot and we've hit it, which is which is great for us because we were expecting that there would be a national insurance increase. So we were quite concerned about that, what it might mean for our business. But thankfully, it's all.

come out in the wash and should equal out. So very happy on our front. For a small business like yours, perhaps there are some larger employers that might have a different view. So let's just hear the rationale for the increase. Successful businesses depend on successful schools. Healthy businesses depend on a healthy NHS. And a strong economy depends on strong public finances.

So, Frances, I mean, do you feel as a business owner and as an individual, as a mum, if hospitals are treating people quicker, if schools have new buildings ready for when your baby starts, all that public spending stuff, any pain now will be worth it?

Yes, definitely. As a working mum, particularly the breakfast club is a great one. And an investment in schools is really beneficial. So very pleased with that. And of course, I think we can all agree that investment in the NHS is going to be a good one. and very much needed. So those are definitely positive points. Yes. And you mentioned breakfast clubs there. That's a tripling of the investment in breakfast clubs. Aaron, Frances is clearly...

Pretty happy, pretty content about this. But this national insurance hike, £25 billion, is going to be felt by some employers, isn't it? Workers won't see it in their payslips right now. Will they in the future?

Yeah, that's exactly right. So it sort of meets the most recent test that Labour set out, which is you won't see any change in your payslip up front. There won't be anything happening because it's just an additional payment that employers will have to make for every pound they pay you. They're paying another 1.2p to the government. The effect will be...

Over the coming years, it's a cost that employers are having to somehow fund. In some cases, that will be that they make lower profits. In other cases, it might be they have to pass on some of those costs. One thing that's important to remember is it doesn't mean it gets passed on kind of equally to all employees. The best evidence is that where this stuff gets passed on to employees, it might often be the slightly higher paid workers who pay slightly more of it.

The reason for thinking about that just at a very basic level is imagine people who are on the minimum wage. I mean, clearly, if there's a higher cost to employing these people, the employer can't reduce their wage because they're on the minimum wage already. And that minimum wage is already going up. So there's nothing the employer can do about that. So if it wants to pass.

that cost if it wants to maintain its profits it either has to charge slightly higher prices to customers or it has to pay less to slightly higher paid workers Thank you. Kirsty, we've touched already on fiscal drag, but that was a surprise, wasn't it, in the budget when it came to income tax thresholds. So just to give a bit more information, in 2022, the previous Conservative government froze those thresholds until 2020.

That meant every year more people were dragged into those higher tax bands as their salaries went up. We'd really quite broadly expected that she might raise money by extending that freeze, and she hasn't. No, and I think it is something that we'll continue to monitor. Obviously, the policy was that we're not going to see a worsening for working people.

Maintaining that level of freeze for the next few years means that people aren't going to feel any real benefit. So even though this is good news in the future, actually over the next couple of years, because the income tax rate is frozen, people...

aren't going to feel that there has been a benefit from this budget for some time. So what would you call it? A small, slightly bedraggled rabbit out of the hat. Exactly that, yeah. Okay, well there was good news for workers over the age of 21 on the minimum wage. It's currently £11.44 an hour.

hour. It's set now to rise to £12.21 an hour from next April. Aaron, that's a pay rise for around 1.6 million people. What difference will it make to their pay packets? Yeah, so for somebody who's above 21, it's a 6.7% increase. You'd expect an annual benefit of about £1,400 if you're working full-time at that rate. So it's a really big boost to earnings for that kind of group.

And what about students who are working? Lots of them are under the age of 21. Anything for them? Yeah, so it's an even bigger boost for younger workers. The Chancellor announced that the plans are to try to move towards having a single minimum wage that applies to all.

all adults, and so that means it's actually a much bigger rise, a 16% rise for people working full-time, well, for people working who are aged 18 to 20. So if you're working full-time and aged 18 to 20, your minimum wage will be £10 an hour. it's another two and a half thousand pounds for you roughly every year, which is a really big change for someone working like that. It is. And I suppose as well as that, through income tax and national insurance, that also raises more money for the Treasury.

exactly I mean it will feed through the question will be obviously employers having to how they're going to have to meet that higher minimum wage alongside the national insurance contributions. But with that higher minimum wage, if people are being paid more, that does mean more money that goes through to the Treasury as well. Well, let's ask a business owner. We've got Francis still with us. Francis, what will it mean for your coffee shop?

Yeah, so the National Insurance was a positive message. This one, not so much for us. Your staff might be pretty just. Yes. This is quite a big difference for us. And particularly, like I said, in hospitality, we're all dealing with very small margins. So this increase, although it will be fantastic for our team members.

does mean that we are going to have to make some sort of adjustments which will probably ultimately end in a price increase on our menu um so cost of living might go up but you know people are paid more but the cost of living it's a it's a Tricky balance, isn't it? But you can't argue with paying people more. But yes, it's a hard one to swallow, that one. And something will have to change. Thank you. Let's hear from Janine, who runs a community centre in Lancaster. The minimum wage increase.

along with the commitment not to add fuel tax, you know, increase fuel tax, is great because that has a knock-on effect for costs of everything to all of us, doesn't it? on the whole, all positive. Well, we'll get to that fuel duty change shortly. But Kirsty, 1.6 million people might be on minimum wage. Do hikes in that travel up the chain? Will more people who are on higher wages perhaps see a pay rise as a result?

Yeah, it depends on what level of income they have. I think we will see people, that fiscal drag, I'm going to keep talking about it, but it is still going to impact people longer term. It won't have as much of a sizable impact on those higher or additional rate taxpayers.

Right, some very major changes though to capital gains tax. Now this is the tax charged on profits which are made from selling. Assets like a second home or investments like shares. The lower rate of capital gains tax is going up from 10% to 18%. And the higher rate is going up from 20% to 24%. And that matches the rates paid on residential. property. Kirsty, who's this going to affect the most?

This will affect anyone that has investments that are outside of an ISA or a pension. So predominantly anyone that invests in shares or maybe gets company shares as part of their remuneration package. This hike is not a surprise. OK, we were expecting some level increase.

and actually it's less severe than has been speculated along the way. But it does appear on initial inspection that change happens as at today rather than the new tax year. There were also changes happening pretty immediately to stamp duty. for second homes. It's rising from 2% to 5%. And that's happening from tomorrow. Very little chance to rush through any sales. Let's hear from Richard, who's a landlord in London.

I'm appalled by the increase in the additional stamp duty land tax because there's a huge shortage of properties at the moment. I think it's something like 21 applicants per property and the shortage is only going to get worse. I think stamp duty is a stupid tax anyway. It's a tax on moving. And I think the government's got far too comfortable with raising 19 billion a year from stamp duty. And, you know, it's really something that needs to be totally reviewed. I think the days of me...

buying are absolutely over. The regime is just too punitive. And I don't feel that the government really is supporting of landlords. So I think like a lot of other landlords, I'll be holding with a view to probably probably exiting, you know, in the next decade or so. Well, we're getting quite a few messages in from people who feel like Richard feels. Aaron, the Chancellor also said she would keep full relief on stamp duty for first-time buyers buying homes.

worth up to £425,000. Could rising costs like this for landlords mean rents rise and I suppose make it harder for those first-time buyers to save a deposit in the first place? I think the point that Richard made is exactly right, which is that...

What it's really going to do is sort of freeze the market in terms of who the landlords are. Landlords who are in the market already don't have any additional cost as a result of this. What it does is mean that if you're someone thinking about becoming a landlord or a landlord thinking about buying an additional property, there's a higher cost to you. But the existing kind of stock...

of rental properties should stay there and what I guess is trying to do although I agree with Richard that stamp duty is not a particularly good tax and there's one we

we should really do without. But what it's trying to do is create that wedge between the price effectively that someone who's a first-time buyer is trying to pay for a house and the price that landlord is paying. So when they're competing for the same house, for the landlord, it's effectively more costly to buy that same house because they're going to have to pay a higher stamp.

on it, whereas first-time buyer might be paying no stamp duty at all. And therefore potentially give them a bit more wiggle room. Okay, there was also an announcement on carer's allowance. Here's Rachel Reeves again.

Carer's allowance currently provides up to £81.90 per week to help those with additional caring responsibilities. Today, I can confirm that we are increasing the weekly earnings limit to the equivalent of 16 hours at the national living wage per week.

Now, we know this will be important for some of our listeners. And on Saturday, Moneybox will be looking at what this might mean for the number of hours that carers can work before they lose their allowance. Do email us if that might affect you. The address is moneybox.

at bbc.co.uk. Come and have a chat with Paul. There's also been a significant change for anyone who's on benefits and who takes out a budgeting loan or a budgeting advance. Now, these are an interest-free way to borrow between £100. and £812 and then your repayments get taken out of future benefits payments. Kirsty, this was actually announced in the spring budget but it begins in December.

Very briefly, what's changing? So essentially it means that if there is a period of time where someone has delayed receiving benefits or weren't able to receive their benefits in a timely manner, they have to pay that back over a period of time, but they've extended that period. So what that means...

is those people receiving benefits, the monthly repayment, is it going to impact their actual income from benefits in as much money as it would have previously? So I think it's stretching out that liability to reflect that people were already... on the breadline and already struggling if they're claiming benefits. So to reduce it significantly to repay this loan is unfair.

Of course, if you were already paying back a budgeting advance or you took one out before December, you will need to still pay it back within one year. The Chancellor also said there would be £1 billion from next year to extend the household support fund.

discretionary housing payments now that money can be accessed differently through different councils but i suppose putting the money there reflects that things are still very tough for lots of people on the lowest incomes yeah and i think the the point that

council budgets are pretty stretched and therefore government needs to be providing support so that local councils can be supporting their residences is exactly kind of what this is recognizing that without putting in some more central resource local councils are struggling to provide all of the

aspects of care they're supposed to provide because social care is such a large part of their budgets and they just don't have the means to be able to actually support people these days. Right, the budget is always a bit rowdy, isn't it, in Parliament. What is it though that got the biggest cheer?

was absolutely and maybe surprisingly for the 1p cut in the tax on beer so we currently have which which which we will now hear which means a penny off the pints in the pub You've got to have that energy, Aaron. But yes, well guessed. But yes, exactly. So the alcohol duty work says there's a fixed amount of taxi pay per unit of different kind of drink.

and that usually increases the budgets with inflation and Rachel Reeves allowed that to increase with inflation for all sources of alcohol except for draft beer in the pub. saw a 1p cut I mean I don't know how many people will go to the pub and actually find that the landlord has taken one penny off the price of their beer but in theory a pint is 1p cheaper and either you get 1p less to pay for it or the landlord's making a bit more profit and maybe stays in business a bit longer.

Both of which beer drinkers, pub goers might welcome. Kirstie, fuel duty, we've touched on. It was a big surprise, wasn't it? We've seen fuel duty frozen or cut for around 10 years now. It was pretty widely expected that it would rise today.

not the case? No, so what Rachel Booze has recognised is that a sudden increase in this climate is not going to go down very well. People need to be on the road to go to work and do the things they need to do. So at the moment we have seen that frozen for another year. Beyond that point, obviously, it's likely to increase, but it is a slight breather for people. And also, Kirsty, a hike in air passenger duty.

Yeah, so this is essentially the fixed amount that you pay to fly. And it is based on how you fly. So whether you're economy, business class or first class. This is bad news for the aviation industry. They're not going to be happy about this because it does mean... in flight costs. But actually, depending on how you're flying, if you're flying your own plane, then it's significantly higher. But if you are flying economy, it's not a demonstrable difference for the vast majority of people.

400 quid if you're per passenger if you're flying in a private plane but for most people about two pounds per journey thank you um there was also there was a push to increase house building more widely there was money made available for new affordable homes and for

social housing is it going to be enough to ease the housing situation yeah well more to add to that was also money for uh more planning officers to try to speed up the planning process but yeah i mean all of those things are very good and it

I guess to the extent the government that says it wants to last 10 years and do things that matter for the long term, that's all great because I think these are really important, like genuinely very important moves for the housing market. I don't think people should be expecting next year or the year after to find house prices.

be lower as a result of this because these things take a while to feed through but it will matter in the medium term and it's good that these things are happening and not just being put off because politically they don't pay off very quickly.

Thank you. Lots of people getting in touch with what they did before the budget, what they're doing after the budget. One person says, I took tax-free cash earlier than planned from my SIP, but then used ISA allowances for myself and my wife to invest it back into the same fund as my SIP was invested in.

With the change in inheritance tax rules affecting pensions, it doesn't look like a bad move. Thank you, everybody, who's been in touch today. While we're talking about your finances, by the way, one last important thing to mention. The deadline for sending a tax return using a paper form.

is the 31st of October, which is tomorrow. Thank you to everybody who took part today. And thank you, of course, to our experts. We've been hearing from Kirsty Stone, a partner at the Independent Financial Advisors, the private office, and Dr. Aaron Advani, Professor of Economics at the University.

Thank you both. Now, with a budget like this one, it does take a few days to dig through the detail. And Paul Lewis and the team are locked away in a room as we speak right now doing exactly that. But don't worry, we'll let them out in time. for Moneybox on Saturday at midday. Don't miss it. If you want to contact us about the budget or any other financial story, then please do. You can email moneybox at bbc.co.uk. You can also message us on WhatsApp. The number again is

In this special Moneybox Live budget podcast, the producer was Sarah Rogers with help from Catherine Lund. The researcher was Emma Smith. The studio manager, Chloe Wilson. Our editor is Jess Quayle. I'm Felicity Hanna and this was a BBC News Money and Work production for BBC Sounds.

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