Rachel Reeves is “quietly hammering” workers with stealth taxes as a result of her budget last year, a think tank has said.
While the chancellor did not increase income tax, national insurance contributions for employees or VAT, avoiding a manifesto breach, her November statement did see her extend a freeze on the first two until 2031.
It means people face being dragged into paying higher rates as their wages rise over time.
The Treasury has defended the policy as “fair and necessary”. It’s expected to raise £23bn in 2030-31 to help the government “deliver on the country’s priorities” like cutting NHS waiting lists and debt.
Sir Keir Starmer has promised people will “feel positive change” in their pockets this year.
According to the Centre for Policy Studies (CPS), someone earning £50,000 today will be £505 worse off in real terms come 2031 despite their salary being forecast to increase by more than £6,000.
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On the flip side, pensioners and those on welfare are set to be better off.
Thanks to the triple lock guaranteeing increases in line with inflation, earnings or 2.5%, whichever is higher, a pensioner could expect to be at least £306 better off in real terms in 2030-31.
If people relying on the state pension are exempted from paying income tax even once the payment crosses the personal allowance threshold, they could be £537 better off.
And increases to the standard rate of universal credit will mean someone on unemployment benefits will be £290 better off.
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‘Raising taxes through the back door’
The CPS – a centre-right think tank, which used Office for Budget Responsibility inflation and wage growth forecasts for its calculations – said the chancellor was “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.
“Freezing the personal allowance for income tax 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.”
‘Hardworking people paying the price’
Ms Reeves had criticised freezing tax thresholds in the past, as had been done by previous Tory governments.
But at the budget, she said she was “asking everyone to make a contribution” to fund public services.
A Treasury spokesman said: “In the budget we increased the national living wage and national minimum wage and took £150 off people’s energy bills, extended the freeze on prescription fees, fuel duty and froze rail fares for the first time in 30 years.”
Conservative shadow chancellor Sir Mel Stride accused Ms Reeves of lacking the “backbone to control spending”.
“Hardworking people are paying the price,” he added.
