More people are saving amid worries potential tax rises are looming
Brits are saving money at levels not seen in almost two years, spurred by worries over potential tax rises looming on the horizon. The Office for National Statistics has revealed that the savings ratio – the amount of disposable income that’s left unspent – climbed to 11.1% in the first quarter of 2024.
This leap from 9.3% in the last quarter of 2023 represents the highest peak since the third quarter of 2021. This uptick in savings coincides with new Chancellor Rachel Reeves’ vow of “iron discipline” on public purse strings, as she cautioned there’s “no magic money tree”, stating: “Every commitment we make must be fully funded. That’s the approach I will bring to the Treasury.”
Although Labour has dismissed the idea of raising income tax, National Insurance and VAT, they’ve stopped short of making similar promises on capital gains tax, pension tax relief or inheritance tax – sparking concerns about possible tweaks to balance the books.
The Institute for Fiscal Studies (IFS) warned that Labour had “not addressed the difficult choices on tax and spending that await”. In its analysis following the election, the IFS said: “Without further tax increases or spending cuts, it is hard to see how Labour’s plans will add up.”
Meanwhile, the same batch of ONS figures indicated that real household disposable income saw a surge of 2.5% in the first quarter of 2024 – the most significant rise in two years – yet consumer spending hardly moved, inching up a mere 0.2%.
Consumer confidence remains ‘fragile’
Analysts believe the mixed signals in the market are due to a combination of falling inflation, better net wages, and persistent wariness among shoppers. Retail sector experts have also pointed out the prevailing uncertainty.
Echoing this sentiment, the British Retail Consortium recently said: “Consumer confidence remains fragile as the country continues to adjust to the high cost of living.”
The Labour Party is gearing up to unveil a comprehensive tax plan for the Autumn Statement later in the year, which will shed light on how Ms Reeves plans to achieve her goals.
The Chancellor has vowed to ‘bring back economic stability’, assuring industry leaders earlier in the month: “I want to send a message to businesses across the UK and around the world: Britain is open for business.”
