A leading think tank has accused the Labour government of quietly hammering workers with a prolonged income tax freeze, while those on state pensions and benefits are set for a significant real-terms income boost.
The Mechanics of a 'Stealth Tax Raid'
In the November 2025 Autumn Budget, Chancellor Rachel Reeves announced an extension of the freeze on income tax thresholds until 2031. This policy, described as a stealth tax, does not raise tax rates but instead pulls more people into higher tax bands as their wages rise with inflation.
The independent Office for Budget Responsibility (OBR) confirmed the scale of the move. It is projected to raise £8bn a year by 2029 and will result in 780,000 more people paying the basic rate of income tax, 920,000 more dragged into the higher rate, and an additional 4,000 paying the top additional rate by the end of the parliament.
Workers Lose Out as State Payments Rise
According to a new report from the Centre for Policy Studies (CPS), the consequence is a stark divide. Many workers will be worse off in 2030 than they are today, in contrast to those who receive their income from the state.
The CPS calculated that a Briton earning £50,000 today would be £505 worse off in real terms by 2030-31, despite their salary nominally increasing by over £6,000. Daniel Herring, CPS Head of Economic and Fiscal Policy, stated: "This is fiscal drag in action, raising taxes for millions of workers through the back door. Labour’s tax policy is quietly hammering workers while protecting pensioners and benefit recipients."
In contrast, the picture is "rather sunnier" for those on state support. Thanks to the triple lock guarantee, a pensioner could be at least £306 better off in real terms in 2030-31. This could rise to £537 if assumptions about tax exemptions for the state pension hold.
Similarly, OBR forecasts suggest someone on the standard rate of Universal Credit could be £290 better off by the end of the decade. The report notes that over the next five years, total welfare spending is set to rise by £73.2bn to £406.2bn, with an extra £34bn attributable to the triple lock.
Budget Controversy and Political Fallout
The Budget has been mired in controversy since its presentation. Chancellor Reeves called for "everyone to make a contribution," but faced criticism over the government's fiscal position.
Pre-Budget briefings suggested a near-£30bn black hole due to an OBR productivity downgrade. However, a subsequent OBR letter revealed that as of 31 October, the Chancellor still had a £4.2bn fiscal buffer.
This has led opponents to claim the £26bn in tax rises outlined were used to fund Labour's U-turn on welfare reforms and new spending, including lifting the two-child benefit cap. Conservative leader Kemi Badenoch attacked it as a "Budget for benefits street", criticising Reeves's "tax and spend" agenda.
