Millions of low‑to‑middle earners are set to be quietly hit by higher taxes in the Chancellor’s Budget, new analysis warns today.
Estimates by the Resolution Foundation suggest that workers earning under £35,000 a year could lose £150–£200 a year in take‑home pay due to the decision to freeze income‑tax thresholds for a further three years from 2028 through to 2031.
The think tank suggests the hit will be bigger than if Rachel Reeves had opted to put 1p on the basic rate of income tax.
The tax threshold freeze keeps the personal allowance at £12,570 before people start paying income tax at 20% through to 2031. At the same time, the 40% tax threshold remains at £50,270.
The freeze means that as wages rise modestly, more of a worker’s income becomes taxable – a phenomenon economists call “fiscal drag.”
Analysts estimate that someone on around £33,000 could see an extra £175 a year go straight to HMRC under a moderate-wage-rise scenario, while someone closer to £35,000 could lose about £200 annually.
The Resolution Foundation warns that this “stealth tax” disproportionately affects working households:
Looking at the overall impact of the Budget, the think tank said poorer working families gain only modestly from cost-of-living measures in the Budget – around £90 a year – while the richest half of families lose an average of £1,000.
Pensioners see uneven impacts, with poorer retirees losing £220 a year and wealthier pensioners £680.
It said that scrapping the two-child limit on benefits delivers a major boost to 560,000 families, who will gain an average of £5,310 in 2029–30.
But these gains are overshadowed by the Government’s plan for £77 billion in additional taxes over the next five years, nearly three-quarters of which land after April 2029, as well as £6.4 billion in departmental spending cuts – hitting the Home Office, Justice and local government.
The Resolution Foundation notes that these cuts are equivalent to 88% of the average annual reductions made during the austerity years of 2009–2019.
Despite the Chancellor’s promises of fiscal responsibility, public debt continues to rise. Key liabilities are projected to climb from 81.3% of GDP in 2024–25 to 83.7% by 2028–29, before falling slightly to 82.2% in 2030–31.
Ruth Curtice, Chief Executive of the Resolution Foundation, said: “Sticking to her manifesto tax pledge has cost millions of low-to-middle earners, who would have been better off with their tax rates rising than their thresholds being frozen.”
She added that while the Chancellor front-loaded support for cost-of-living pressures – including reductions to typical energy bills by around £130 a year for the next three years – the majority of the fiscal repair job has been postponed until after the next election.
“Until growth and living standards are addressed, households can expect plenty more bracing Budgets,” Ms Curtice warned.
