Here’s a bold statement: The recent budget announcement by Rachel Reeves might just be the most controversial financial move in years, and it’s hitting the poorest households the hardest. But here’s where it gets controversial—while the freeze on income tax thresholds is framed as a necessary measure, experts argue it’s a stealthy way to burden low- and middle-income earners more than the wealthy. Let’s break it down.
The Resolution Foundation, a leading think tank, has sounded the alarm: freezing income tax thresholds until 2031 will disproportionately harm those in the bottom half of the income scale. This means over 1.7 million workers will either start paying taxes for the first time or be pushed into higher tax bands. Reeves admitted this would affect “working people” but defended it as a £12.4bn revenue generator by 2030-31. And this is the part most people miss—there were alternatives. Ruth Curtice, the foundation’s chief executive, argues that raising headline income tax rates would have been fairer, hitting higher earners more and bringing in more cash for the Treasury.
Here’s the kicker: a 1p tax rise would have raised the same amount of money but would have been less burdensome for anyone earning below £35,000. Instead, the freeze on thresholds leaves everyone except the top 10% worse off. Ironically, sticking to the manifesto pledge has backfired, hurting millions of low-to-middle earners who would have fared better with a tax rate increase rather than a threshold freeze.
Last month, Reeves hinted at breaking Labour’s promise not to raise income tax, national insurance, or VAT by proposing a 2p income tax rise offset by a 2p national insurance cut. This would have only affected those earning above £50,000. However, she later reversed course, opting for the threshold freeze instead. The National Institute of Economic and Social Research criticized this move, calling the budget “lacking economic vision” and emphasizing its disproportionate impact on lower-income households.
While the budget did calm financial markets by extending the Treasury’s financial buffer, it left little room for economic growth. The think tank warns it locks the UK into a high-tax, high-debt state amid low productivity and rising interest rates. Meanwhile, the budget speech was overshadowed by the early release of forecasts by the Office for Budget Responsibility, adding to the chaos.
The Resolution Foundation praised the budget for its cost-of-living support and progressive measures but warned of major tax rises and public service cuts on the horizon. Claims that government departments would avoid spending cuts were dismissed, with tighter spending in the coming years rivaling the austerity cuts of the early 2010s. By 2029-30, departments like the Home Office, justice, and local government could face £6.4bn in cuts—equivalent to 88% of the annual cuts during the austerity era.
Here’s the big question: Is freezing tax thresholds a fair way to raise revenue, or is it a regressive policy that punishes the less affluent? Let’s spark a discussion—do you think this budget prioritizes fairness, or does it disproportionately burden those who can least afford it? Share your thoughts in the comments!
