Chancellor, Rachel Reeves, is set to extend the freeze on income tax thresholds until 2030/31 and introduce national insurance (NI) charges on salary sacrifice pension contributions above £2,000.

In the Autumn Budget, Reeves announced that personal tax and employer national insurance contribution (NIC) thresholds will be frozen for three years from 2028/29, which is expected to raise £8.3bn a year by 2029/30.

The former government froze the UK personal income tax allowance at £12,570 on 6 April 2022, with further extensions since meaning it this is still in place.

In the Budget, Reeves also revealed that the freeze on inheritance tax (IHT) thresholds and tax-free allowances would be extended for a further year to 2030/31.

“The multi-year freeze on income tax thresholds has now been extended, locking households into one of the most powerful stealth tax rises in modern fiscal policy,” said Quilter tax and financial planning expert, Rachael Griffin.

“Reeves has had to renege on what was her rabbit out of the hat moment at her maidan Budget. Given in her speech last year, she said that an extended freeze would hurt working people, this must represent breaking the party’s manifesto pledge.

“With wages rising while thresholds stand still, millions more people will drift into higher tax bands regardless of whether their real living standards have improved. What had initially been framed as a temporary measure has now seemingly become a structural feature of the tax system and will significantly increase the tax take over the rest of the decade.”

Reeves also revealed that NICs will be charged on salary-sacrificed pension contributions, which is forecast to raise £4.7bn annually by 2029/30.

Salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from NICs from April 2029, with salary-sacrificed pension contributions above £2,000 to be treated as normal employee pension contributions.

“At a time when the UK savings gap is growing, restricting pension salary sacrifice schemes is likely to reduce employees’ pension pots and weaken their financial security in later life,” commented Mercer UK wealth strategy leader, Tess Page.

“Additionally, the timescale for implementation will create further uncertainty. Employers would face increased NI costs and greater administrative burdens, making it more challenging to offer competitive pension benefits and potentially hinder the ability to attract and retain talent, and reduce workforce morale and productivity.

“The government should carefully consider the long-term individual and societal consequences of these changes, especially in the context of the ongoing Pensions Commission. Unless retirement saving incentives remain effective and employers can continue to support their employees’ long-term financial wellbeing, the state will end up shouldering an even greater burden.”

Changes to cash ISAs were also announced, with the allowance being cut from £20,000 to £12,000 a year from 2027 for people aged under 65.

“Cutting the cash ISA allowance is unlikely to move the dial in any meaningful way when it comes to encouraging more people to invest – and certainly not in British stocks,” said Rathbones investment director, Jane Sydenham.

“Efforts to funnel retail investors into UK equities run counter to the principle of diversification, a cornerstone of good investing.

“Those using cash ISAs are generally not choosing cash as an investment, but as a stepping stone for short-term goals like a house deposit, while benefiting from tax-free interest.

“Money displaced from cash ISAs would likely end up in taxable savings accounts, not the stock market. Forcing risk-taking isn’t the answer – education and choice are. The government should focus on carrots, not sticks.”

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