what Gen Z thinks of the Budget

Steve, a 25-year-old consultant based in London, has been left disillusioned by the tax changes outlined in Rachel Reeves’ Budget this week.

“I’m supposed to be working harder to try to earn more, save more and invest more,” says Steve, who asked the FT not to use his real name. “But all this Budget said to me was: ‘what’s the point?’”

Steve recently left university with a first-class degree, and earns more than £45,000. With the chancellor extending the freeze on income tax and national insurance thresholds until 2031, he fears he is one promotion away from being dragged into the higher-rate tax band, which starts at £50,270. Above that level, including student loan repayments — with thresholds frozen from 2027 — Steve will face a marginal tax rate of 51 per cent, including NICs.

He says his dream of saving for a flat is completely unattainable unless he earns significantly more or government policy changes.

Steve is part of a cohort of mostly young, ambitious workers who feel disproportionately affected by this week’s Budget — those who, while not wealthy yet, are trying to build wealth.

“It’s those of us who won’t inherit a load that they’ve chosen to go after,” he says.

Robert Salter, a director at accountancy firm Blick Rothenberg, is sympathetic. “Though it’s almost inevitable that a Budget brings both winners and losers, one can certainly argue that this Budget creates a very significant number of losers,” he says.

“Perhaps the group that has the most reason to be disappointed . . . would be graduates impacted by a triple whammy of fixed income tax and NIC bands and the continued freezing of the student loan repayment threshold — while also suffering from an overall economy which is struggling.”

At the same time, the tax changes aimed at those who have already amassed significant wealth — such as the imposition of the so-called “mansion tax” on properties priced at £2mn and above — were less severe than some had feared.

Lucian Cook, head of residential research at property group Savills, described the levy, which starts at £2,500 a year, as “probably the least worst outcome” for owners of luxury properties.

“At a time when the government should be encouraging and fostering growth, through a series of flip-flops and backpedalling, it may just succeed at achieving the opposite effect,” says Martin Muhleder, tax partner at Vialto Partners.

So has the chancellor really put a tax on ambition? FT Money looks at the reactions to the key policy decisions outlined in this week’s Budget.

Tax threshold freezes

Freezing the thresholds at which different tax rates kick in was the biggest revenue-raising policy in the Budget and will cost taxpayers £56bn over the period of nearly 10 years that the freezes are in place, according to the Office for Budget Responsibility. It will mean that in 2030-31, 5.2mn more people will be brought into paying income tax, a further 4.8mn will move to the higher tax rate and 600,000 extra people will be part of the 45 per cent additional tax rate.

Andrew Timpson, employment tax partner at RSM UK, warned that these measures, alongside plans to charge national insurance on salary sacrifice pension contributions, would make many people think twice about earning more.

“[The measures] will likely now reduce any ambition to earn more, as at many levels they are being hit with disincentives to do so,” he says.

Nimesh Shah, chief executive of Blick Rothenberg, says people earning between £50,000 and £150,000 would feel the most pain from the measures. He added that Reeves’ decision to extend the freeze, plus previous chancellor Jeremy Hunt’s decision to cut the threshold from which the top 45 per cent rate of tax applies, from £150,000 to £125,140, meant the top rate of tax was capturing more and more people. If the additional rate had risen in line with inflation, it would have reached around £210,000 today.

“It’s that middle group, the government knows that’s where they generate the most money, so it’s them they’re hitting,” says Shah. “It’s really killing any aspiration and ambition for people to earn more money.”

Even high earners such as Anna, a 24-year-old lawyer at a top international law firm in London, who will soon earn over £150,000, have been left disheartened by the threshold freeze, especially as inflation and housing costs rise.

“We are being taxed as if we’re no worse off. It’s pretty clear I’ll be paying a greater proportion of my salary in tax,” says Anna, who asked for her name to be changed.

“Personally, it won’t make daily life unaffordable, but I’ll inevitably be saving less,” she says. “It’s really hard to start building significant savings, let alone enough of a financial base to feel comfortable investing as the chancellor wants us to do . . . A stealth tax rise makes it that bit harder.”

Salary sacrifice

The salary sacrifice pension changes deal the biggest blow to those looking to build wealth in retirement. From April 2029, sacrificed pension contributions above £2,000 will be subject to national insurance at normal rates — 15 per cent for employers and 8 per cent on staff earning less than £50,270 and 2 per cent on income above that.

This means that someone earning £150,000 a year and sacrificing 20 per cent of their salary would pay an additional £560 a year, as national insurance does not currently apply on any salary sacrifice contributions. The cost to the employer would be £4,200. 

The OBR assumes employers will seek to pass on around three-quarters of the additional cost to employees, half of which would be through lower pension contributions and half through lower salaries and bonuses.

Although most large companies said they were still processing the changes and deciding how to respond, executives have privately expressed frustration with the policy. “Personally, I’m raging,” says a senior director at one large London-based employer.

Employees who choose to sacrifice salary to receive tax-free childcare or child benefit can keep doing so, but they will not get national insurance relief on contributions over £2,000.

However, pension experts warned some companies might cease to offer salary sacrifice altogether, as it will be complicated for business and payroll providers to administer, particularly where staff have multiple jobs. 

One company executive described the salary sacrifice changes as “a mess” and said they expected businesses and staff would end up “finding it too complicated and scrapping it altogether”.

Investments

The chancellor’s move to reduce the annual cash Isa allowance from £20,000 to £12,000 for under-65s from April 2027 has caused some concern among higher earners — especially those who might want to use the cash Isa allowance for large purchases, such as to pay for the deposit on a first home.

In another blow, the Treasury has increased the tax on income from savings by 2 percentage points for basic, higher and additional rates, which will also take effect in April 2027.

The government will also increase the tax on dividends from April next year, by 2 percentage points to 10.75 per cent and 35.75 per cent for basic and higher-rate taxpayers, respectively.

Laith Khalaf, head of investment analysis at platform AJ Bell, says he found it “intriguing” that the chancellor had chosen not to raise the dividend tax on additional rate payers.

“One wonders if this is because the fiscal analysis showed this policy was bumping up against the Laffer curve, which posits there is a point at which raising tax rates actually starts to reduce revenue. In other words, shaking the piggy bank even harder actually costs you money,” he says.

Shaking the piggy bank of middle and higher earners has risks and could ultimately hamper growth, if people decide to reduce working hours or relocate, taking their assets with them.

Goodbye Henrys?

Taken together, some tax experts have warned that more people — especially so-called “Henrys” (which stands for high earners not rich yet) — could look outside the UK for more opportunities to build their wealth.

“Instead of offering incentives or support, the measures announced risk driving away the very individuals and businesses that contribute most to the nation’s prosperity,” says Dave Chaplin, chief executive of ContractorCalculator, a website for freelancers.

“It is increasingly likely that more entrepreneurs will choose to relocate to countries with more favourable tax environments, places where their contribution to innovation, investment, and growth is not only recognised but actively encouraged. By contrast, this Budget sends the message that ambition and enterprise are not valued at home.”

Dan, another 20-something consultant at a FTSE 100 company in London, considered moving to Dubai last year, but didn’t for practical reasons. He says he is once again looking at a move to the emirate.

“Places like Dubai and Singapore are looking more appealing to people my age. I hear about Henrys and Henriettas at work all the time. Life for people in the middle kind of sucks.

“[This Budget] penalises working people, people who are ambitious, people that want to save. It’s not great.

“The government is favouring pensioners and people out of work over young, ambitious people who want to make something of themselves.”

Additional reporting Nathan Brooker