How people in their 20s and 30s could be affected by the Budget

Young people in their 20s and 30s may be hoping the upcoming Budget offers relief from rising living costs, housing affordability and student loan repayments. With many millennials and Gen Zers already struggling to save for a first home, build a pension and keep up with everyday expenses, even small changes could make a difference to their finances. But with the Government facing pressure to balance the books, there are questions over how much help it can afford to offer. We have a look below at the measures that could affect young people. Shorts First-time buyers Housing affordability remains one of the biggest financial challenges facing younger generations. There are two fairly big announcements that could come at this Budget. Earlier this year, the Government held a consultation on a new first-time buyer ISA. The new ISA would pay a government bonus when a buyer purchases their first property, with no withdrawal penalties for using the money for alternative means and no upper age limit for opening or saving into an account. The proposed product would replace the lifetime ISA, but important details remain unclear, including contribution limits, government bonuses and property price thresholds. The LISA gives people a 25 per cent bonus on their savings, as long as they bought a home worth less than £450,000, and they could save £4,000 a year into it. It’s unclear exactly what will change when the new ISA is launched, but a response to the consultation may come either in the coming weeks or at Budget. There could also be more information about the proposed Your First Home scheme. This was announced by the Prime Minister in September and aims to help prospective first-time buyers get on to the ladder with just a 2.5 per cent deposit. The scheme, which will only be available for new-build homes, will give them access to a 20 per cent government-backed loan on favourable terms, including an interest-free period. But Sarah Coles, head of personal finance at AJ Bell, said there was still a lack of detail that would need to be ironed out – potentially at Budget. There have been rumours that buyers face a household income cap of £90,000 to use the scheme. Coles explained: “If it goes down the route of restricting access based on earnings, the Government will need to explain clearly exactly how that will work. “What happens if you plan to use the scheme and then your income goes above the threshold? And what exactly will count toward the income threshold?” Minimum wage rise At the last Budget, the government announced that the minimum wage for those aged 21 and over would rise by 4.1 per cent (50p) from £12.21 to £12.71 from April 2026. It also announced increases for those aged 18 to 20 and for 16- and 17-year-olds. The Low Pay Commission is being asked to consider a potential raise to the rates from next April and is due to report back this month. An announcement on any increase could come at Budget or just beforehand. Student loans Graduates will also be watching for any changes to student loans – particularly Plan 2 loans, given out to borrowers from England who went to university between 2012 and 2022. These people face high interest rates that mean their loans grow faster than they can repay them. The repayment threshold – the salary above which 9 per cent of a graduate’s earnings go towards their loan repayment – has also been frozen from April 2027 until 2030, at £29,385. Sarah Coles said: “There will be some younger people hoping for a revisit of the frozen student loan threshold in the Budget, but this seems less likely.” Burnham’s team hinted earlier in summer that loan thresholds could be unfrozen, but in recent weeks there have been reports that this will not happen. It remains to be seen whether changes comes at the Budget. Pension and tax changes There are several policy changes that could affect people of all ages – but have a particular impact on the younger generation. Pension policy is often associated with older workers and retirees, but there is one looming change that could have a major effect on younger workers – changes to salary sacrifice rules. Salary sacrifice is an agreement between an employer and an employee where the employee gives up a portion of their gross salary in exchange for a benefit – like a pension. Both the employee and the employer pay less in national insurance (NI), and the employee pays less income tax. Under rules announced at the last Budget, only the first £2,000 of annual employee pension contributions made through salary sacrifice will remain exempt from NI from 2029. Craig Rickman, personal finance editor at interactive investor, said reversing or lifting the proposed salary sacrifice cap would be one way to support workers. Rickman warned the limit would make it harder for young people “to strike the increasingly tricky balance between meeting today’s living costs and saving for retirement”. The income tax personal allowance is another issue that could impact younger people, as well as older ones. The allowance – the amount people can earn before paying income tax – has been frozen at £12,570 since 2021 and is due to stay there until 2031. As wages rise with inflation but the threshold stays fixed, a growing share of income becomes taxable, even though the tax rates themselves haven’t changed. Rachael Griffin, tax and financial planning expert at Quilter, said younger workers could benefit from the Government bringing forward plans to unfreeze thresholds. She said: “Bringing forward the point at which thresholds begin increasing again would allow workers to retain more of future pay rises.”