High earner households could lose thousands in purchasing power over the next few years as a result of measures introduced in last month’s Autumn Budget.
According to analysis of HM Treasury data, high earners not rich yet (HENRY) households will see an average reduction in their annual purchasing powers by over £15,000 by 2029, due to Reeves’ Budget policy changes.
Changes in purchasing power – the amount of products or services a single unit of money can acquire – have been put down to Reeves’ choices on tax freezes, welfare policies and public spending decisions.
Chris Beauchamp, chief market analyst at IG, said: “While the Chancellor met her fiscal rules and avoided increases to income tax or national insurance, the combination of policy measures and frozen thresholds will have a disproportionately large effect on HENRY households.”
High earners brace for impact
High earners are scrambling to deal with the fallout of the Autumn Budget, which saw them be hit by increased tax burdens, despite earning well below the top income percentiles.
According to IG, UK adults with an average income of £65,700 will receive no net support from decisions made in the Budget, in particular due to the income tax threshold freeze and hiked taxes on dividends and savings held outside tax-free wrappers such as pensions and ISAs.
Additional rate taxpayers earning approximately £103,700 face an average net annual loss of 0.3 per cent of their income.
Meanwhile, household inflation coupled with fiscal drag from frozen thresholds will leave higher rate taxpayers with an average reduction in purchasing power of £8,395 by 2029, while top earners will be slapped with a staggering loss of £15,658.
Many people have argued the decision to extend the freeze is a break to Labour’s manifesto pledge, with the £8bn stealth tax set to lead 920,000 more Brits into paying 40 per cent tax on their income.
Beauchamp said: “Many in these income bands carry high living costs and wouldn’t recognise themselves as ‘rich’.
Once inflation and fiscal drag are factored in, the squeeze on real disposable income will feel significant, forcing some households to reassess spending, saving and long term financial plans.”
Engage in investing
The tax changes to dividends and cash savings are part of the Chancellor’s push to urge more Brits into investing in the stock market, including plans to slash the cash ISA allowance to £12,000 for under 65s and roll out a targeted support scheme in 2026.
IG is also encouraging high earners to shift more cash into the stock market.
Beauchamp said: “Households in this bracket should be motivated to become more engaged with investing as they recognise that growing and protecting whatever wealth they can is increasingly crucial.”
“However, there is also the risk that squeezed disposable incomes limit how much households can invest, something the government should consider as part of its drive to get more Brits investing.”