Reeves ‘quietly hammering workers’ with tax threshold freeze, think tank warns

Rachel Reeves is “hammering” workers with stealth taxes while pensioners and those on benefits will see their incomes increase, analysis by a think tank has found.

The Chancellor extended a freeze on income tax and national insurance thresholds until 2031, meaning people face being dragged into paying higher rates as their wages increase over time.

The Centre for Policy Studies (CPS) said someone earning £50,000 today would be £505 worse off in real-terms by 2030-31, despite their salary being forecast to increase by more than £6,000.

The centre-right CPS said there was a “rather sunnier” picture for pensioners and those on the standard allowance for universal credit.

Thanks to the state pension triple lock guaranteeing increases in line with inflation, earnings or 2.5%, a pensioner could expect to be at least £306 better off in real terms in 2030-31 than in 2025-26.

If, as Ms Reeves has indicated, she will exempt people relying on the state pension from paying income tax even once the payment crosses the personal allowance threshold, they could be £537 better off in real terms.

The CPS said the increases in the standard rate of universal credit will mean someone on out-of-work benefits would be £290 better off at the end of the decade.

The CPS analysis used Office for Budget Responsibility inflation and wage growth forecasts in its calculations.

It said a combination of poor forecast wage growth and frozen income tax thresholds means that “many workers will be worse off by 2030 than they are today, in contrast to those who receive their income from the state, whether via a pension or benefits”.

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.

“Meanwhile, the state pension and universal credit will both be worth more in real terms.

“This is fiscal drag in action, raising taxes for millions of workers through the back door.”

£23 billion

The freeze in personal tax thresholds is expected to raise around £23 billion for the Exchequer in 2030-31.

At the time of the Budget in November 2025, Ms Reeves said she was “asking everyone to make a contribution” to help fund public services and investment.

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.

“The fair and necessary decisions we made at the budget mean we can deliver on the country’s priorities – cut waiting lists, cut debt and borrowing and cut the cost of living.”