Before the Budget, Rachel Reeves hinted that she’d increase income tax, then did a sharp U-turn and said she wouldn’t. Today, she hiked it by stealth. And it’s a huge blow for tens of millions of taxpayers. Most analysts assumed she’d extend the freeze on income tax thresholds two more years, from 2028 to 2030. But she went further than that. Now it will run for an extra three years until 2031.
That will cost taxpayers around £8.3billion each year, which adds up to almost £25billion in total extra income tax. That’s on top of the £42billion the freeze will already have cost us when it ends in 2028.
There was no mention of extending the freeze in the election. No mention in the manifesto, where Reeves and PM Keir Starmer pledged they wouldn’t hike income tax, national insurance (NI) or VAT.
In last year’s Budget Reeves made a virtue of not extending the freeze, saying she was protecting working people by doing so. And now she’s done it anyway – by three more years. It will now run for a staggering nine years in total, costing taxpayers thousands every year.
Yet unbelievably, she boasted that she’d kept “every single one of our manifesto commitments”.
She already broke one last year, hiking NI by £25billion, but did it by slapping the bill on employers rather than individuals. Workers still paid the price through lost jobs, low salary hikes and higher prices in the shops. And now she’s broken a second. Voters won’t forgive her.
The extended income tax freeze means more than 40million people will pay income tax, including many pensioners.
Millions will be dragged into higher tax brackets. Once, paying 40% was only for the wealthy. Soon, close to 10million will pay it. These are working people, the group Labour says it was elected to protect.
And she didn’t stop there. She also extended the freeze on inheritance tax bands by an extra year, and went after our homes, savings, motorists and pension contributions.
What she didn’t do was take any meaningful steps to cut the spiralling welfare bill.
Spending on sickness and disability benefits alone is set to jump to £109billion by 2030/31, according to the Office for Budget Responsibility (OBR) blowing a hole in her hopes of rebuilding Britain’s standing with bond markets.
Total welfare spending is heading beyond £400billion after a string of benefit giveaways, including axing the two-child benefit cap.
The Chancellor sounded triumphant, but as Tory leader Kemi Badenoch pointed out, she’s giving 560,000 households on benefits an extra £5,000 a year, while attacking households that are trying to save, invest, drive to work or build a pension.
So we’re facing another £26billion in tax on top of the £40billion hit in last year’s Budget. It’s straight back to 1970s tax-hiking Labour. And judging by the state of the economy, Reeves will be back for more.
The OBR says Britain now faces five years of stagnating living standards as inflation and higher taxes bite. It expects real household disposable income to grow by just 0.25% a year.
The watchdog also cut the UK’s growth outlook for every year from 2026 and warned borrowing this year will be £21billion higher than forecast. Cumulative borrowing will be nearly £70billion higher than previously expected.
Much of the rise is driven by Labour’s welfare U-turns and net zero policies, which will add around £11billion a year to the borrowing bill.
And how does the Chancellor pay for it? By hiking income tax and pretending she isn’t. It’s a disaster for workers but good news for those on benefits. Yet it still won’t be enough, so we can expect more of the same soon enough.
