Budget 2024: Cost of Living crisis tackled by three huge Rachel Reeves announcements

Rachel Reeves delivered a boost to millions of working people.

While forced to impose a wave of tax hikes – some that will inevitably impact ordinary households – she went out of her way to deliver help where after years of punishing pay squeezes under the Tories. The UK’s first female Chancellor summed up her speech by claiming she had made the “right choices”.

One of those that took many by surprise was the decision not to extend a freeze on personal tax thresholds. There had been speculation would extend the cut-off points at which different rates of income tax are paid, dragging more people into higher tax brackets.

READ MORE:

This would have cost the average worker hundreds of pounds a year. But instead, the Chancellor said personal tax thresholds will be uprated in line with inflation from 2028/29. She said: “When it comes to choices on tax, this government chooses to protect working people every single time.”

Mike Ambery, retirement savings director at Standard Life, said: “One of the biggest tax raising measures of recent years hasn’t resulted from a tax hike but the decision to freeze income tax bands at 2021/22 levels.” The unfreezing of the thresholds will also benefit millions of pensioners who, because of rises in the state pension, will leave many losing some of the uplift to their income.

Jan Shortt, general secretary of the National Pensioners Convention, said: “We could do with it next spring or sooner.” Millions of lower paid workers will also benefit from a 6.7% jump in the National Living Wage next April, from £11.44 to £12.21 an hour. Ms Reeves described the move as a “significant step” towards delivering on Labour’s manifesto promise to introduce a “genuine living wage for working people”.

The increase, recommended by the Low Pay Commission, will mean an extra £1,400 a year for a full-time minimum wage worker. Kate Smith, head of pensions at financial giant Aegon, said: “A hidden benefit is that the increase in the National Living Wage will also have a positive impact on pension contributions, enabling employees to build up larger pension pots.”

The Chancellor announced the minimum wage for people aged 18 to 20 would rise to £10 an hour, an increase of £1.40. Business groups responded by warning that the wage jump – combined with a £25billion a year rise in employers’ National Insurance contributions – would backfire by leading to lower pay rises and potential job losses. The Office for Budget Responsibility forecast it could push up inflation as firms pass the cost on through price rises.

Meanwhile, the Chancellor delivered welcome relief to motorists by freezing fuel duty again and extending a temporary 5p cut, at a cost of £3billion to the Treasury next year. Ms Reeves told MPs: “In these difficult circumstances, while the cost of living remains high and with a backdrop of global uncertainty, increasing fuel duty next year would be the wrong choice for working people.”

Howard Cox, founder of FairFuelUK, hailed the move, saying: “She finally recognises that keeping fuel duty frozen is at the core of a laudable journey to economic growth.” Freezing fuel duty since 2010 has cost the Treasury – and saved motorists – £100billion, the OBR added.

The tax rakes in £25billion a year as it is. The Chancellor, who inherited a £22billion black hole in public finances, also committed to increase benefits, including those claimed by working families, in line with inflation.

But experts warned the tough decisions she was forced to make could not shield ordinary people from the fall-out. Paul Johnson, director at the Institute for Fiscal Studies, said: “The employer NICs rise will increase the incentive for employers to switch to contracting with the self-employed.”