Chancellor races ahead with huge tax rises as spending cuts loom

Two leading think tanks say the freeze on tax thresholds until 2031 is a major stealth tax on working households. The Resolution Foundation estimates 1.7 million people will be pulled into paying tax or into higher bands. The OBR forecasts higher-rate taxpayers rising from 7.2 million to 8.9 million, and additional-rate taxpayers from 1.2 million to 1.6 million.

Pensioners also face the same squeeze. The State Pension will rise to £12,548 in 2026, placing millions just a fraction below the frozen tax threshold.

The Chancellor delivered a far more upbeat Budget than many were expecting, with significant cost of living support and sensible, progressive measures that reduce some of the distortions in the tax system.

But it was far from pain-free, with major tax rises and cuts to public services coming down the line, and a look behind the headroom suggests a fiscal repair job that is far from complete, the Resolution Foundation said today (Thursday) in its overnight analysis of Autumn Budget 2025.

The Foundation’s analysis finds that Poorer working-age families were protected most, whilst richer pensioners were spared the worst. Policies announced in this Parliament have been progressive, particularly for working-age households. The poorest half of families have gained £90 a year on average, compared to losses of £1,000 for the richest half. It was less progressive for pensioners however, with the poorest half losing £220 on average, while the richest half lost £680.

The manifesto tax pledge has cost working people. Having previously hinted at raising Income Tax rates, the Chancellor chose instead to freeze personal tax thresholds for three more years. But raising all rates by 1p would have been less costly than freezing thresholds for anyone with an income below £35,000. Indeed, all but the top ten per cent of the income distribution are worse off because of opting for threshold freezes over rate rises (which raise similar amounts of revenue).

However, three-in-five families set to benefit from its scrapping include at least one person in work. Overall, 560,000 families will gain an average of £5,310 in 2029-30.

Ruth Curtice, Chief Executive of the Resolution Foundation, said “The Chancellor needed to clear three crucial hurdles in her Budget – to ease cost of living pressures, tax smartly and repair the public finances.

“The Chancellor was front-footed – and front-loaded – on cost of living support. Over half a million larger families will get a major income boost next spring, while typical energy bills will be cut by around £130 annually for the next three years, though support then fades away.

“Sensible tax reforms will also help to level up the tax treatment of income. But, ironically, 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.

“By more than doubling the headroom against her fiscal rules, the Chancellor has taken steps to repair the public finances, too. But appearances can be deceiving. Debt is up and most of the fiscal repair job has been put on hold for three years.

“One hurdle that remains to be cleared is boosting growth – which has been downgraded by the OBR, along with the outlook for living standards. Until that challenge is taken on, we can expect plenty more bracing Budgets.”