Recent budget decisions in the United Kingdom are drawing scrutiny amid claims that employed individuals are bearing the brunt of so-called “stealth taxes”, while pensioners see an increase in real-term benefits.
The Chancellor has extended the freeze on income tax and National Insurance thresholds to 2031, a measure that, while not raising headline tax rates, is set to affect millions as incomes rise over time.
This approach is anticipated to raise £23 billion in additional revenue by 2030–31. The policy, defended as necessary by the Treasury, is designed to help reduce NHS waiting lists and manage public debt.
However, think tanks and opposition politicians argue the freeze disproportionately impacts workers, and benefits recipients stand to gain as a result.
Overview of Recent Tax Policy Changes
The government’s budget programme has maintained a freeze on the personal income tax and employee National Insurance thresholds, now due to remain in place until 2031.
This policy, described as a means to deliver on national priorities without directly breaching manifesto pledges to avoid increasing income tax or VAT, was originally introduced in previous years and has now been extended further by the current Chancellor.
The move means taxpayers whose earnings grow with inflation or wage increases will gradually pay more tax, as more of their income will cross into higher tax bands.
The budget did not raise the rates of tax, but the freezing of thresholds, often called a stealth tax, increases the overall tax burden for many working households.
Fiscal Impact and Projected Revenue
Official analyses estimate that the threshold freeze will generate an additional £23 billion in tax revenue by 2030–31. The Office for Budget Responsibility’s projections underpinned this estimate, based on expected increases in earnings and inflation.
According to the Treasury, these funds are intended to support major public service initiatives, such as reducing NHS backlogs and lowering the national debt.
Defending the measure, the Treasury highlighted other policies designed to alleviate cost-of-living pressures, including increasing the national minimum and living wage, providing a £150 energy bill rebate, freezing prescription fees, fuel duty, and maintaining rail fares.
Workers’ Income and Tax Threshold Freeze
Analysts from the Centre for Policy Studies (CPS), using OBR figures, have projected that a person currently earning £50,000 could, by 2031, be £505 worse off in real terms even as gross pay rises by an estimated £6,000 or more over the period.
This is attributed to their being pulled into higher tax bands due to the freeze, effectively lowering their take-home pay when adjusted for inflation. Daniel Herring, head of economic and fiscal policy at CPS, stated that
the policy “will hit everyone, but it’s those who are dragged into higher tax bands who will really suffer, to the point where a worker on £50,000 today is set to actually be poorer in five years’ time, despite getting pay rises”. This analysis adds to concerns that the tax burden on middle-income earners will continue to grow.
Benefits for Pensioners and Welfare Recipients
In contrast to workers, pensioners and welfare recipients are likely to see real-term gains. The state pension benefits from the triple lock, a guarantee that ensures annual rises by the highest of inflation, wage growth, or 2.5%.
Projections suggest a typical pensioner could be at least £306 better off in 2030–31, with some scenarios indicating the advantage could be £537 if state pension payments rise above the personal tax allowance and remain tax-exempt.
Similarly, recipients of universal credit are expected to experience an increase of approximately £290 in real terms over the same period, following announced increases to standard rates.
These policies have led analysts to conclude that current measures protect incomes for older people and those dependent on benefits.
Political Debate Surrounding Tax Strategy
The extension of the threshold freeze has reignited political debate over government tax policy. The Chancellor, Rachel Reeves, had previously criticised similar tactics under previous governments.
At the latest budget statement, Reeves stated she was “asking everyone to make a contribution” to help fund public services. Opposition parties have challenged the fairness of the approach, with Conservative shadow chancellor Sir Mel Stride contending that “hardworking people are paying the price” and accusing the Chancellor of failing to exercise spending restraint.
Final Summary
The government’s decision to freeze income tax and National Insurance thresholds until 2031 has deepened debate about taxation fairness in the UK.
While pensioners and welfare recipients are projected to see real-terms gains due to uprated benefits, working individuals face a higher fiscal burden as their salaries cross static tax thresholds.
The Treasury considers the policy necessary for funding vital public services, while opposition figures and economists warn of growing pressure on middle-income households.
The evolving tax picture remains a critical issue for many British families. Readers seeking further analysis on fiscal policies can access more updates via the Pie app.
