New Chancellor under pressure to rip up Rachel Reeves’ tax hikes | Personal Finance | Finance

Pressure is mounting on new Chancellor John Healey to ditch a string of Rachel Reeves’ controversial tax changes amid warnings they could leave millions worse off. Investment platform AJ Bell says Healey has an opportunity to draw a line under months of uncertainty over pensions, ISAs, and taxes, as he prepares for his first Budget.

The City firm argues that restoring confidence among savers should be one of the Treasury’s top priorities after years of speculation over tax raids on pensions and investment accounts. It warns that uncertainty has already prompted many people to make costly financial decisions, with billions of pounds withdrawn from pension pots amid fears that tax-free cash could be curtailed.

Tom Selby, director of public policy at AJ Bell, said the new Chancellor faced an immediate challenge balancing pressure to fund Labour’s spending ambitions while honouring election promises not to increase income tax, National Insurance, or VAT.

He said: “When it comes to personal finance policy, the focus must be on restoring certainty, simplicity and confidence for savers, investors and those planning for retirement.

“Recent Budgets have been dominated by speculation over potential pension tax raids, ISA reform and changes to salary sacrifice. That uncertainty is damaging in and of itself, often encouraging people to make rushed decisions that may not be in their best long-term interests.”

End the pension tax-free cash rumours

AJ Bell says Healey’s first move should be to kill off speculation that tax-free pension cash could be cut. Successive Budget rumours have fuelled fears among retirees, prompting many to withdraw money from their pensions earlier than planned in case the rules changed.

Mr Selby said: “The new Chancellor’s number one objective should be to end the circus of Budget speculation we have seen in recent years, particularly in relation to pensions tax-free cash.

“This speculation has already had real world consequences, with billions of pounds of retirement cash withdrawn based on fear, rather than people’s long-term goals.”

He urged ministers to make an early commitment that pension tax-free cash and existing tax reliefs will remain untouched.

Rethink inheritance tax on pensions

The investment firm is also urging Healey to reconsider plans to bring unused pension funds into the inheritance tax system. Although a full U-turn is unlikely, AJ Bell says ministers should simplify the proposals to avoid creating fresh complications for bereaved families already facing lengthy probate delays.

Mr Selby warned that adding pension schemes into an already complex inheritance tax regime risks creating unnecessary bureaucracy at one of the most difficult times for families.

Scrap ISA shake-up

The Chancellor is also being urged to abandon planned changes to ISAs introduced under Reeves. AJ Bell argues that cutting the Cash ISA allowance for under-65s, introducing anti-avoidance rules and placing restrictions on cash held within Stocks and Shares ISAs would undermine one of Britain’s most successful savings products.

Instead, the firm wants Labour to return to its pre-election pledge to simplify the ISA system and encourage more long-term investing.

Reverse salary sacrifice changes

Another policy under fire is the planned £2,000 annual cap on National Insurance savings through salary sacrifice from April 2029.

AJ Bell says the reforms could leave many workers with less take-home pay while weakening incentives to save for retirement. The biggest impact is expected to fall on employees earning between £45,000 and £50,000.

Fix the £100,000 tax trap

The Chancellor is also being urged to tackle one of the most criticised features of the income tax system. People earning more than £100,000 gradually lose their personal allowance, creating an effective marginal tax rate of up to 60%.

For parents, the financial hit can be even greater because childcare support is largely lost once taxable income exceeds £100,000. AJ Bell says the system discourages people from accepting promotions or working additional hours because a pay rise can actually leave them worse off.

The firm also argues ministers should consider ending the long-running freeze in income tax thresholds, which has dragged millions more workers into paying higher rates through fiscal drag.

Build bigger pension pots

The company wants the Government to review automatic pension enrolment to ensure workers save enough for retirement. While automatic enrolment has brought millions into workplace pensions, AJ Bell says many people – particularly women, the self-employed and lower earners – remain on course for inadequate retirement incomes.

It wants the Treasury and Department for Work and Pensions to produce a long-term roadmap setting out how pension contributions could be increased gradually without placing too much pressure on households or employers.

Future of the triple lock

AJ Bell also says the Government should provide greater certainty over the future of the state pension triple lock. The policy has become increasingly expensive as pensions continue to rise by whichever is highest of inflation, earnings growth or 2.5%.

Mr Selby said ministers should be honest about the long-term cost and consider moving to a more sustainable system once the full state pension reaches an agreed share of average earnings. He warned that failing to address the issue risks forcing future governments into raising the state pension age even further.