Budget Impact on Workers
The Chancellor, Rachel Reeves, has been accused of "raising taxes on millions of workers through the back door" due to her budget last year. Although she did not increase income tax, national insurance contributions, or VAT, she extended the suspension of the first two until 2031. This means that people will be forced to pay higher rates as their wages increase over time.
Tax Increases Through the Back Door
The Center for Policy Studies (CPS) has calculated that someone earning £50,000 today will be £505 worse off in real terms in 2031, despite their salary being expected to rise by more than £6,000. This is because the freezing of tax thresholds will affect everyone, but those caught in higher tax brackets will really suffer.
Impact on Different Groups
On the other hand, pensioners and welfare recipients are likely to be better off. Thanks to the triple lock, which guarantees increases in line with inflation, income, or 2.5% (whichever is higher), a pensioner could expect to be at least £306 better off in real terms in 2030-31. Additionally, an increase in the standard rate of Universal Credit means someone on unemployment benefit will be £290 better off.
Response from the Treasury
The Treasury has defended the policy as "fair and necessary", stating that it is expected to raise £23 billion in 2030-31 to help the government deliver the country’s priorities, such as cutting NHS waiting lists and debt. A Treasury spokesman said that the budget increased the national living wage and the national minimum wage, cut people’s energy bills, and frozen rail fares for the first time in 30 years.
Criticism from Opposition
Conservative shadow chancellor Sir Mel Stride accused the Chancellor of lacking the "backbone to control spending". He added that "hard-working people pay the price" due to the budget. The CPS head of economic and financial policy, Daniel Herring, said that the Chancellor’s tax policy "quietly puts pressure on workers while protecting pensioners and benefit claimants".
