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31 July 2026, the day new chancellor John Healey (unexpectedly) set the date for his first budget (28 October 2026) and in the process kicked off the seemingly now annual ritual of fevered budget speculation. Expect lots of scary headlines about how much taxes will go up and which ones will be targeted in the run-up to B-day.
Not here. Rather than embark on the speculative trail, we prefer taking a step back to look at the bigger picture. For by doing so, we can get a better handle on what the new(ish) government faces when it comes to the public finances. This in turn can help inform decisions and so better prepare us for the future. And spoiler alert. The future will definitely see tax hikes. How do we know? All will be revealed but for now a question: whose financial inheritance was worse - Sir Keir Starmer’s or Andy Burnham’s?
The big number
The simple way to answer this question is to compare the UK’s total debt position around the time the two Labour prime ministers took office.
Rewind back to 5 July 2024 (Starmer’s first day as prime minister) and total UK debt stood at £2.74tn. Since then, the debt pile has been increasing by around £330m a day so that total debt reached £2.99tn by the end of June 2026, just weeks before Burnham took over the premiership. In terms of the raw numbers then, the worst financial inheritance went to Burnham.
To hammer home the scale of the task Burnham and Healey face to turn the UK’s public finances round, one in every £10 of everything the country spends now goes on servicing debt interest payments. That unwelcome stat came from former chancellor Rachel Reeves. Another way to look at this is that in the last year, the UK spent significantly more on paying interest to service debt than was collected in corporation tax. And, after the NHS, debt interest payments are the second largest component of government expenditure, above pensions and education.
What’s more, back in June 2026 the Office for Budget Responsibility said that over the next 50 years, almost all scenarios show public debt eventually moving into an unsustainable path. The UK’s demographics are the chief culprit here, but the country’s lacklustre economic growth (in real terms) doesn’t help. It’s important to note, however, the UK is not alone - many other developed nations have seen their debt levels grow too.
Reeves’s tax hikes
But what about the £66bn in tax hikes Reeves announced in her two budgets - surely they go some way towards improving Burnham’s financial inheritance? Sadly not. Reeves’s tax rises are already baked into future numbers, even though not all have come into effect yet.
Bad news for consumers and investors then as they can expect to feel the impact of many of these hikes in their pockets soon. Think the extra 2% tax on dividend interest which only kicked in at the start of this year, but will not have been taxed yet. From 6 April 2026 the ordinary tax rate charged on dividends rose to 10.75% from 8.75%; and the upper rate to 35.75% from 33.75% (the additional rate is unchanged at 39.35%).
Then there is the extra 2% on savings income and property income. For savings held in deposit accounts, the basic tax rate increases to 22% from 20%, the higher rate to 42% from 40% and the additional rate to 47% from 45%. This will take effect from 6 April 2027. The same changes apply to property income.
And don’t forget the new inheritance tax rules coming in next year. As announced in the 2024 Autumn Budget, unused pensions pots will fall within the IHT regime from April 2027 onwards.
Did you know?
A total of 175 individual policy decisions have been unveiled in the last two budgets.
The bottom line
Whether Healey adds to the personal tax burden arguably misses the point. Thanks to hikes announced across Reeves’s two budgets, we already know taxes are going to rise in the year(s) ahead. So, regardless of what happens on 28 October 2026, it could well save you money to plan ahead sooner rather than later. That means making sure personal finances are in order: that allowances have been used up where appropriate; that financial plans have been reviewed; and that any action planned has been taken. For tax rises are definitely coming. You heard it here first.
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This material is not tax, legal or accounting advice and should not be relied on for tax, legal or accounting purposes. Quilter Cheviot Limited does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting adviser(s) before engaging in any transaction.
