Chancellor Jeremy Hunt announced sweeping tax cuts in the UK, marking the lowest personal tax level since 1975. The highlight of his pre-election Budget was a 2p reduction in national insurance, promising an average annual saving of £450 for workers and £350 for two million self-employed individuals. Despite these cuts, experts warn that the benefits might be negated by the freezing of income tax thresholds, a phenomenon known as fiscal drag, which can lead to higher effective tax rates over time due to inflation and wage increases. The Office for Budget Responsibility estimated the cost of this tax cut at £10.5 billion annually, reduced to £8.9 billion after considering indirect effects. This initiative aims to boost the labour supply and incentivize work, positioning the UK with the lowest effective personal tax rate since 1975 among G7 nations. Furthermore, the government plans to consult on abolishing class 2 national insurance to tackle double taxation, despite concerns regarding the impact of fiscal drag and the evolving tax burden.

In another domain, understanding pensions remains critical for ensuring financial security in retirement. Pensions serve as a savings pot for later life, with a variety of schemes available, including workplace, private, and state pensions. Workplace pensions involve contributions from both employer and employee, private pensions are individually set up, and the state pension is a government-issued weekly payment based on National Insurance contributions. The intricacies of opening and contributing to these pensions vary, with different rules applying to each type. Access to pensions typically starts at age 55, with some schemes raising the minimum age to 57 from April 2028. The importance of informed decision-making and effective management of pension schemes is emphasized to guarantee a stable income in retirement and secure one’s financial future.