UK Families Tucking Away More Cash Under Labour but Tax Hikes Still on the Horizon

UK households are stashing away more of their income now than they did under the previous Tory government, with new figures showing a noticeable jump in savings. According to the Office for National Statistics, the proportion of disposable income that people are saving rather than spending has climbed to 11.1% in the first quarter of 2024. That’s a solid rise from 9.3% at the end of last year and the highest savings rate since the third quarter of 2021.

This shift in behaviour seems to be partly down to Chancellor Rachel Reeves’ recent tax policy and her clear message about the state of the country’s finances. Her tough stance on keeping spending in check has pushed families to think more cautiously about their money, reported Birmingham Live.

Reeves has already made it clear she’s not about to splash out on unfunded promises. “Every commitment we make must be fully funded. That’s the approach I will bring to the Treasury,” she said, pledging what she called “iron discipline” over public finances and repeating the now-familiar warning that there’s “no magic money tree”.

But while people may be saving more now, there’s no guarantee they’ll have much breathing room for long. Experts are warning that more tax rises could be on the cards before the year is out. According to City consultancy Capital Economics, the public borrowing figures have been slightly better than expected recently, but that doesn’t mean Reeves is out of the woods.

In a note to clients back in June, Capital Economics said that although borrowing in May came in below forecast, the Office for Budget Responsibility might still increase its borrowing projections later this year. “That and already-tight spending plans mean tax hikes later this year appear increasingly likely,” the note read.

With borrowing costs rising, the OBR may also revise up the government’s debt interest payments in the Autumn Budget, potentially squeezing Rachel Reeves’ £9.9bn fiscal buffer even further. Capital Economics warned: “We doubt it will get much better for the Labour Party Chancellor anytime soon.”

They added that any U-turns on benefit and welfare commitments, plus weaker productivity forecasts and mounting debt costs, could mean Reeves needs to find an extra £13-23bn to keep her current financial cushion intact. And that’s where the warning gets serious – the consultancy believes that to raise that kind of money, more tax hikes are probably inevitable.

With markets already edgy about large increases in government borrowing, there’s pressure on Reeves to keep everything in balance without spooking investors. But for regular UK households, the message is clear – saving now might be smart, because things could soon get tighter.

Whether the tax increases will be stealthy tweaks or headline-grabbing hikes remains to be seen, but one thing’s for sure: Rachel Reeves has no easy road ahead. As families try to protect their finances, many will be watching the Autumn Budget closely, hoping that “iron discipline” doesn’t turn into a financial squeeze.