The Labour government is “quietly hammering” workers following the Autumn Budget’s stealth tax raid while pensioners and those on benefits are set to enjoy a jump in income, a think tank has said.
In the November Budget, Rachel Reeves extended the freeze on income tax thresholds until 2031 – a move which is viewed as a discrete tax grab as it quietly drags more Brits into higher tax bands as wages increase.
The Office for Budget Responsibility confirmed that the move would raise £8bn a year by 2029, and would drive 780,000 more people into paying the basic rate of income tax, 920,000 more into the higher rate, and 4,000 into the additional rate by the end of the parliament.
But the Centre for Policy Studies (CPS) has said the changes will result in “many workers being worse off by 2030 than they are today, in contrast to those who receive their income from the state”.
The CPS found Brits earning £50,000 today would be £505 worse off in real-terms by 2030-31, even as their salary is set to increase by more than £6,000.
“This is fiscal drag in action, raising taxes for millions of workers through the back door,” Daniel Herring, CPS head of economic and fiscal policy, said.
“Labour’s tax policy is quietly hammering workers while protecting pensioners and benefit recipients.”
Pensioners and benefit claimants set to benefit
The CPS said there’s a “rather sunnier” picture for those receiving state payments.
Guaranteed pension increases in line with inflation, earnings or 2.5 per cent through the triple lock, meaning a pensioner could expect to be at least £306 better off in real terms in 2030-31 than in 2025-26.
This could climb even further to £537, if Reeves follows assumptions in exempting those on state pension from paying income tax even once the payment crosses the personal allowance threshold.
Meanwhile, the CPS said OBR inflation and wage growth forecasts suggest the standard rate of universal credit would place someone on out-of-work benefits £290 better off at the end of the decade.
The report also said that over the next five years, welfare spending will rise by £73.2bn to £406.2bn, with an extra £34bn due to the triple lock.
Budget debacle
When Reeves stood up to present her Budget in November, she asked “everyone to make a contribution,” but she has since received criticism over allegations that she had misled the British public.
Rogue briefings in November, ahead of the Budget, suggested the Chancellor was staring down a near-£30 bn black hole after a productivity downgrade from the OBR.
However, a letter later published by the OBR revealed that as of 31 October, the Chancellor had maintained a fiscal buffer of £4.2bn, despite the productivity downgrade forecast.
This meant Rachel Reeves’ £26bn tax grab in the Budget was used to fill gaps left by Labour’s U-turn on welfare reforms in the Summer and to cover a new spending splurge on the lifting of the two-child benefit cap.
Conservative leader Kemi Badenoch said it was a “Budget for benefits street” as she took aim at Reeves’ “tax and spend” agenda.