A stark warning has been issued that millions of British workers will be financially worse off by the end of the decade due to the current government's tax policies, while those on benefits and state pensions become relatively richer.
The Mechanics of the 'Quiet Hammer'
Research from the Centre for Policy Studies think tank highlights the powerful effect of fiscal drag. This occurs when tax thresholds are frozen while wages rise, silently pulling more people into higher tax brackets. Chancellor Rachel Reeves extended the freeze on income tax and National Insurance thresholds until 2031 in her Autumn Budget.
The analysis presents a concrete example: a worker earning £50,000 today will see their salary rise to around £56,000 by 2030. However, after accounting for fiscal drag and inflation, they will actually be £505 worse off in real terms. Their combined tax rate on income above the higher-rate threshold could jump from 28% to 42%.
Winners and Losers in Labour's Tax Landscape
In sharp contrast, the report states that pensioners protected by the triple lock will be at least £306 better off by 2030, or £537 better off if they benefit from the proposed 'quadruple lock'. Similarly, benefits claimants are projected to gain up to £290 in real terms, aided by increases to the standard allowance.
Daniel Herring, Head of Economic and Fiscal Policy at the Centre for Policy Studies, said: ‘Labour's tax policy is quietly hammering workers while protecting pensioners and benefit recipients. Freezing the personal allowance will hit everyone, but it’s those dragged into higher tax bands who will really suffer.'
Broader Implications and Political Fallout
The policy has sparked accusations of a stealth tax raid on working people, coming despite Labour's manifesto pledge not to raise taxes on them. The Daily Mail recently reported that Chancellor Reeves has announced more tax rises than any other Chancellor in at least sixty years, with measures adding an estimated £75.1 billion annually to the tax burden.
An HM Treasury spokesperson defended the government's approach, stating: '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.' They pointed to measures like increasing the National Living Wage and providing energy bill support.
Nevertheless, the think tank's conclusion is clear: the current trajectory means workers will see living standards fall as they rise for those more dependent on the state, a direct result of fiscal drag operating 'through the back door'.
