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Financial Year 2025 - How it Affects Your Money
The new financial year means a number of the legislative changes announced in last year's budget have now taken effect. Here's what the 2025/2026 financial year means for your finances.
Spring ushers a new fiscal year in the UK, a time of renewed public finances and business planning. This year, however, the financial outlook is shaped by a paradox: rising incomes for households and businesses, accompanied by the potential for a significant increase in costs and economic headwinds both at home and abroad.
From April, millions of workers will benefit from an inflation-busting 6.7 per cent rise in the National Living Wage, bringing the minimum hourly pay for those over 21 to £12.21. The change amounts to an annual increase of approximately £1,400 for full-time workers, a substantial gain for lower-income households. Younger workers and apprentices are also set to see above-inflation wage rises of up to 18 per cent.
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At the same time, state benefits — including Universal Credit, Carer’s Allowance and the State Pension — are increasing in line with inflation and the triple lock. Pensioners will see a 4.1 per cent rise in payments this month. The state’s welfare provision remains a vital buffer, particularly as energy, water, and council tax bills all climb.
However, the broader welfare picture is more ambiguous. The Labour government’s proposed £5 billion in welfare savings, including reforms to Universal Credit rates and a tightening of Personal Independence Payment (PIP) eligibility, have already sparked concern among advocacy groups and low-income households. While the details remain subject to consultation, the political risk for Labour could mount if real incomes fail to keep pace with living costs.
For UK businesses, the new tax year brings a slew of fiscal changes that are likely to test the resilience of small and medium-sized enterprises (SMEs) in particular. From 6 April, Employers’ National Insurance contributions rise from 13.8 per cent to 15 per cent, while the salary threshold for contributions drops sharply from £9,100 to £5,000.
Retail, hospitality, and leisure businesses will see their business rates relief halved — falling from 75 per cent to 40 per cent — a move that could significantly increase operating costs on high streets already reeling from inflation and reduced consumer spending.
Furthermore, statutory pay rates for maternity, paternity, and sick leave have increased, pushing up the wage bill for employers already facing the steepest minimum wage increase in over a decade.
The convergence of higher payroll costs, reduced tax relief, and potential shifts in consumer demand suggest that UK SMEs may need to re-evaluate their growth forecasts. The government’s promise to streamline infrastructure approvals and ease regulatory burdens may prove too little, too late for some.
In the housing market, the end of the stamp duty holiday, which had temporarily raised the nil-rate band for first-time buyers to £425,000, has begun to take effect. From 1 April, the threshold has returned to £300,000, dampening demand that had been artificially boosted in Q1.
The Halifax house price index reported a 0.5 per cent month-on-month drop in March, following a 0.2 per cent fall in February. The average house price now stands at £296,699. Mortgage demand, having spiked earlier in the year to beat the deadline, is beginning to normalise.
However, there may be a silver lining for buyers: swap rates (which underpin fixed mortgage pricing) have fallen in April amid heightened expectations that the Bank of England will cut interest rates sooner than previously forecast. An anticipated economic slowdown, triggered in part by new US trade tariffs, could prompt the BoE to accelerate rate cuts to support demand.
Arguably the most disruptive development in the global macroeconomic landscape this spring is the Trump administration’s imposition of blanket 10% import tariffs — including on UK goods — alongside a targeted 25% duty on car imports.
The UK had braced for a 20% tariff, so the 10% tariff received was met with a level of relief, but nonetheless, is now embroiled in the most far-reaching reconfiguration of global trade since the Second World War.
The automotive sector, a cornerstone of UK manufacturing and one of its largest export industries to the US (worth £9bn in 2024), is among the hardest hit. Research from the IPPR think tank warns that over 25,000 jobs in the car industry could be at risk, particularly at plants such as Jaguar Land Rover and Mini’s Cowley factory.
With capital markets already rattled and global equities sliding, UK exporters face rising costs and shrinking margins. Consumer prices for imported US goods are expected to rise, potentially fuelling inflation.
In the face of domestic pressures and international volatility, fiscal prudence is the government’s stated priority. The Office for Budget Responsibility (OBR) now forecasts a modest budget surplus by 2029/30, contingent on current spending being met by tax revenues and a fall in net financial liabilities relative to GDP.
There are also growing calls to increase the personal income tax allowance, which has been frozen at £12,570. A petition to raise this threshold to £20,000 has garnered over 230,000 signatures, reflecting public frustration with fiscal drag as inflation eats into take-home pay.
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