- Sir Keir Starmer has announced his resignation from his role as Labour Party leader, and will therefore be stepping down as prime minister
- Andy Burnham is widely tipped to succeed him on 17 July 2026, assuming no challengers emerge before that date, and he is expected to choose a new chancellor
- That means Rachel Reeves and Sir Keir Starmer are expected to leave their posts with a legacy that includes swathes of tax increases
- Constrained by a manifesto promise not to increase income tax, National Insurance contributions or VAT, Reeves has taken a tough stance over meeting fiscal rules when presiding over two Budgets
- Other key policies under Starmer and Reeves include bringing unused pensions into the estate for IHT purposes and introducing further complexity into the ISA system despite promising simplification before coming to power
Rachel Vahey, head of public policy at AJ Bell, comments:
“Two years on from Labour’s landslide election victory in July 2024, Sir Keir Starmer and Rachel Reeves have left a lasting imprint on the UK’s personal finance landscape – but not one many households will welcome. Few have been spared punishment in a multi-billion pound tax raising exercise that has hammered workers, pensioners and savers alike.
“While their time in charge of the country and the economy may end sooner than many expected – and under difficult circumstances – the tax rises, cuts to incentives and other policy decisions introduced during their tenure are set to leave many families worse off. The financial consequences of those decisions will continue to weigh on household budgets, savings and retirement planning for years to come.
“Reeves has struggled to balance the nation’s books, having been boxed into a corner early on with Labour’s manifesto promise not to increase income tax, National Insurance or VAT for ‘working people’ as well as an unwavering dedication to following the fiscal rules.
“Faced with mounting economic pressures – including a large fiscal deficit, rising government borrowing costs, and the lingering economic impact of Brexit and the war in Ukraine – Reeves has sought to shore up the public finances through a series of tax rises. She has overseen two of the biggest tax-raising Budgets in recent history, with the 2024 Budget raising around £40 billion a year and the 2025 Budget adding a further £26 billion.
“This rummage down the back of the sofa for loose change has hit personal finances hard, changed the tax landscape, and makes it more challenging for people to save for their future.
“Here are eight personal finance changes Starmer and Reeves leave us as their legacy:”
- Axing the winter fuel payment
“Reeves was barely through the door of Number 11 Downing Street when she announced her intention to axe the Winter Fuel Payment for all but the poorest pensioners. She might have been banking on getting the unpopular decisions out first, but she faced a massive backlash from the country and sent panicked pensioners swarming to apply for the pension credit in order to ensure they still qualified for the payment.
“Months later the government U-turned on its original decision, meaning the Winter Fuel Payment would be paid to all pensioners and only clawed back for those with an income of more than £35,000. But the damage to the government’s reputation was already done.
- Deep freeze for tax thresholds
“The freeze on income tax thresholds could go down as one of the defining tax legacies of the Starmer-Reeves government. Although the policy began under Boris Johnson and Rishi Sunak as a temporary post-pandemic measure and was subsequently extended under Jeremy Hunt, Labour’s decision to extend the freeze further until 2031 has transformed it into a decade-long stealth tax raid.
“By holding thresholds still while wages continue to rise, millions more workers are being pulled into paying tax or pushed into higher tax bands without any headline increase in tax rates. It means many people will find a growing share of their pay packet disappearing to HMRC, even if their spending power hasn't improved by the same amount.
“For higher-rate taxpayers the effect is particularly stark. By the end of the freeze, someone earning £75,000 could be paying almost £4,800 a year more in income tax than if thresholds had risen with inflation. It's a reminder that governments don't always need to raise tax rates to increase the tax burden.”
- Payroll costs hike faced by employers
“In her first Budget in October 2024, Reeves announced big hikes to payroll costs from National Insurance increases and a higher minimum wage. Put together it meant an additional cost to businesses of almost £2,400 to employ someone on the minimum wage working 35 hours per week from the following April.
“The increase to employer National Insurance from 13.8% to 15% added dramatically to employer’s staffing bills. But slashing the starting threshold where employers pay National Insurance from £9,100 to £5,000 piled much more cost on top.
“The move was projected to net the government £26 billion by the 2029/30 tax year – and time will tell if it reaches those lofty targets. But it was inevitable that businesses would struggle, and as expected there have been widespread impacts on hiring, pricing and profitability, hitting the British public in their pockets as well as their employment prospects.”
- Increasing dividend tax, CGT and other taxes
“Constrained by her promise not to raise the rates of income tax, National Insurance or VAT for ‘working people’, Reeves responded by turning her attention to other taxes instead.
“Over the last two years we have seen an increase in the rates of capital gains tax (CGT) from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate from October 2024. On top of this, the basic rate and higher rate of dividend taxation increased in April 2026 by two percentage points up to 10.75% and 35.75% respectively.
“There have been other taxes on our personal finances. Initial proposals for changes to agricultural property relief and business property relief for inheritance tax (IHT) were so unpopular it had farmers marching on Whitehall with pitchforks. And the pain isn’t over yet. April 2027 promises a raft of other measures including a new separate property income tax, and an increase of two percentage points in savings income tax.
“The cumulative impact of these changes means more households are bearing the brunt of Reeves’ tax squeeze, facing bigger tax bills on their savings and investments. As a result, making full use of tax-efficient shelters such as ISAs and pensions has become even more important for anyone looking to keep more of their hard-earned money out of the taxman's clutches.”
- Bringing pensions into the inheritance tax (IHT) net
“The decision to bring unused pension pots into the scope of inheritance tax (IHT) from April 2027 is already having a significant impact on some parts of the pensions market.
“It adds a new layer of complexity for people who had planned to leave unused pension savings to loved ones. Many are now having to decide whether to draw money from their pension, spend it, gift it during their lifetime or move it into other assets less exposed to IHT.
“But the biggest challenge will fall on personal representatives (PRs), who are often family members responsible for administering an estate after someone dies. The new rules risk creating a costly and time-consuming administrative burden at what is already an incredibly difficult time.
“AJ Bell, alongside the wider pensions and financial advice industry, has consistently argued that there are much simpler ways to achieve the government's policy objectives and revenue raising targets without creating this level of complexity and distress. As we hurtle towards 6 April 2027, the scale of the administrative burden these changes will impose is only going to become clearer.”
- Imposing a new pension salary sacrifice cap
“The National Insurance (NI) savings of salary sacrifice for pension contributions will be capped at £2,000 a year from April 2029. While it is still unclear how employers may react to the changes from 2029, in reality the move will mean many working people will see less in their pay packets. The biggest impact is expected to cluster around the £45,000 to £50,000 earnings band as the lower 2% NI rate kicks in for those earning above £50,270.
“Employers using the schemes will be forced to foot the cost of a second consecutive tax raising Budget. While salary sacrifice currently helps workers save up to 8% employee NI on the cost of their pension contributions, the savings on offer are bigger for employers. There is no upper threshold for employer NI, so they will face a 15% charge on the full value of sacrificed contributions over the £2,000 cap. Some generous employers have previously rewarded employees by sharing all or some of their saving, but it’s likely the added costs to payroll will lead to reward schemes being watered down or withdrawn.”
- Rampant speculation over the future of pension tax incentives
“One raging pensions fire the government has repeatedly refused to put out under Starmer and Reeves revolves around the fate of pension tax incentives – namely tax-free cash and tax relief on contributions.
“Hard-working people doing the right thing by saving for their futures throughout their working lives should at the very least expect the government to stand firm on its side of the bargain. And yet, in the months preceding both the 2024 and 2025 Budgets, damaging speculation around tax-free cash in particular led to billions of pounds being taken out of pensions early. In practice that means a triple threat of fear pushing many to alter their retirement plans, money being moved out of productive assets and UK plc, and fuelling a lack of long-term trust in the pensions system.
“AJ Bell has led industry calls for Rachel Reeves to commit to a Pension Tax Lock that ruled out changes to tax-free cash and tax relief on contributions. Not only would this be in the best interests of hard-working pension savers across the country, but it would also neatly complement the government’s stated aim to cultivate a retail investing culture in the UK. Instead, although ultimately opting to pull different levers in the last two Budgets, Rachel Reeves refused to provide stability and certainty.
“It is inevitable that unless the government makes a commitment not to change tax-free cash ahead of the next Budget, scores of pension savers will make the same, often irreversible decision to access their pension early – and potentially deal a blow to their long-term retirement plans.”
- Damaging ISA rule tinkering to attempt to encourage more investment
“Reeves’ parting shot to the personal finance industry was confirmation that, despite widespread industry concerns, the government would press ahead with reforms to Stocks and Shares ISAs alongside the new £12,000 Cash ISA limit for under 65s from April 2027.
“The Treasury intends to apply three core anti-circumvention rules for Stocks and Shares ISAs: a 22% charge on interest paid on cash held; not allowing the investment portfolio to be 100% invested in money market funds; and a ban on transfers from investment ISAs to Cash ISAs for under 65-year-olds.
“Unfortunately, these reforms reduce flexibility, entrench the divide between cash and investment accounts and introduce tax charges and complex age-related allowances.
“Riddled with unintended consequences, the reforms will do little to encourage new investors. Instead, going against the whole rationale behind the policy, when faced with increasingly complex ISA rules many would-be investors will stick with what they know: cash.”
