Rachel Reeves’ legacy in 8 personal finance changes that will leave yo | Personal Finance | Finance

PM Sir Keir Starmer and Chancellor Rachel Reeves may soon be swept from office, but their legacy won’t easily be forgotten, especially by taxpayers.

They swept into government promising economic credibility and competent leadership. That image was shattered within weeks as they talked down the UK economy, scrapped the Winter Fuel Payment for millions of pensioners before an embarrassing U-turn, and destroyed sentiment by warning of painful Budgets ahead.

It ended with the nation buckling under £66billion in new taxes, unemployment soaring, growth slowing to a crawl while the debt and deficit raged out of control.

Andy Burnham looks set to succeed Starmer as PM on Monday, July 20, and he is expected to choose a new chancellor too. So what will Starmer and Reeves’s legacy be for your household finances?

Rachel Vahey, head of public policy at AJ Bell, said the pair have reshaped Britain’s personal finance landscape in ways not many families will welcome. “Few have been spared punishment in a multi-billion pound tax-raising exercise that has hammered workers, pensioners and savers alike.”

Reeves has overseen two of the biggest tax-raising Budgets in recent history that will leave many families worse off.

Vahey added: “She has struggled to balance the nation’s books, having been boxed into a corner with Labour’s manifesto promise not to increase income tax, National Insurance or VAT for ‘working people’, and her unwavering dedication to following her fiscal rules.”

Vahey names eight personal finance changes that Starmer and Reeves will leave as their legacy. It’s a long list.

Axing the Winter Fuel Payment

The first big controversy came right at the start, as Reeves announced plans to strip the Winter Fuel Payment from all but the poorest pensioners, triggering a huge backlash.

Months later, ministers performed an embarrassing U-turn. The payment was restored to most pensioners, then clawed back only from those with an income of more than £35,000. It was too little, too late. Vahey said: “The damage to the government’s reputation was already done.”

Deep freeze for tax thresholds

The freeze on income tax thresholds could prove Reeves’s most expensive legacy for millions of workers. Although the policy started under the Conservatives, Labour has extended it until 2031, turning a temporary measure into a decade-long stealth tax.

As wages rise while tax bands stay frozen, more people are dragged into paying tax or pushed into higher rates. Vahey said somebody earning £75,000 by the end of the freeze could be paying almost £4,800 more income tax each year than if thresholds had risen with inflation.

Employers squeezed

Reeves hiked employer National Insurance from 13.8% to 15% and slashed the threshold where businesses start paying it from £9,100 to £5,000.

Combined with a higher National Living Wage, AJ Bell estimates it added almost £2,400 to the annual cost of employing a full-time worker on the minimum wage. This sent unemployment soaring, while squeezing company profits. “It’s hit the British public in their pockets as well as their employment prospects.”

Higher taxes on investors

Reeves raised capital gains tax rates in October 2024, then increased dividend tax by two percentage points from April 2026, lifting the basic and higher rates to 10.75% and 35.75%.

From April 2027, she will also add 2% to savings income tax and property income tax rates.

Vahey said: “Under Reeves, tax-efficient shelters such as ISAs and pensions have become even more important.”

Pensions dragged into inheritance tax

From April 2027, unused defined contribution pension pots will be counted as part of an estate for inheritance tax.

Many savers are already rethinking whether to spend pension money, gift it or move it elsewhere. Vahey warned: “The new rules risk creating a costly and time-consuming administrative burden at what is already an incredibly difficult time.”

Salary sacrifice attacked

From April 2029, the National Insurance savings available through pension salary sacrifice will be capped at £2,000 a year.

This will affect around 3.3 million workplace pension savers. Somebody earning £50,000 could lose around £240 a year, while employers face an extra £450 cost. Vahey warned: “Company pension schemes will now be watered down or withdrawn.”

Pension uncertainty

One of the biggest complaints from the pensions industry wasn’t necessarily what Reeves changed, but what she refused to rule out.

Ahead of both Budgets, speculation swirled around tax-free cash and pension tax relief. Although neither changed, many savers withdrew money early because they feared the rules were about to.

Vahey said the uncertainty damaged confidence and could leave some people worse off in retirement after making irreversible decisions. “Reeves refused to provide stability and certainty.”

ISA reforms add complexity

Reeves promised to simplify ISAs before taking office. Instead, Vahey said the rules have become more complicated.

From April 2027, under-65s will face a new £12,000 Cash ISA limit, although pensioners will still have the full £20,000.

In another twist, cash held in Stocks and Shares ISAs while waiting to be invested will become taxable, adding still more complexity and confusion. Vahey believes the reforms risk putting people off investing altogether.

Whatever happens after Andy Burnham arrives in Downing Street, those eight disastrous changes are likely to endure. For millions of households, Rachel Reeves’s dismal legacy will live on in our pay packets, pensions, savings and tax bills.