New analysis of the government's tax plans has revealed a stark divide, with pensioners and those on benefits set for a significant income boost over the next decade, while millions of middle-income workers face a financial squeeze.
The Winners: Pensioners and Benefit Recipients
Thanks to protections within Chancellor Rachel Reeves's fiscal strategy, millions of older people and families receiving state support are projected to be better off. The cornerstone is the "triple lock" on the state pension, which is forecast to leave millions £306 a year better off by 2031. Some pensioners could gain even more, up to £537 annually, under additional safeguards being called a "quadruple lock."
Critically, those who rely solely on the state pension will be fully exempt from income tax, even as payments rise above the standard tax-free personal allowance next year. Recipients of universal credit are also in line for gains. Standard-rate claimants are set to see their payments increase by £290 a year by 2031, with higher rises for those on additional elements, all linked to inflation.
The Losers: The Squeezed Middle Earners
In sharp contrast, the analysis indicates that workers earning around £50,000 are heading for a real-terms reduction in their take-home pay. Over the next five years, a worker on this salary could see their post-tax income fall from £39,520 to £39,014 – a loss of more than £500.
This squeeze affects around seven million people earning above £50,000, including over a million in London. The root cause is the prolonged freeze on income tax thresholds, a policy first introduced by the Conservatives in 2021-22 and now extended under Labour until 2031.
The higher-rate threshold, where the 40% tax band begins, has been frozen at £50,270 since 2022. Had it increased with inflation, it would now stand at over £62,000. The Office for Budget Responsibility predicts that by 2030, an extra 4.2 million people will pay income tax, with 3.5 million dragged into higher or additional-rate bands.
Professions on the Frontline of Fiscal Drag
The impact of this so-called fiscal drag will be felt across key professions. According to the analysis:
- Nurses, electricians, and primary school teachers are on course to breach the higher-rate threshold by 2031.
- Secondary school teachers, police officers, and London's average earners could be affected as soon as next year.
Daniel Herring, head of economic and fiscal policy at the Centre for Policy Studies, commented: "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."
The government has defended its overall approach. A Treasury spokesman pointed to measures designed to help families, including increases to the national living wage, a £150 reduction on energy bills, and freezes on prescription fees, fuel duty, and rail fares.
Downing Street is preparing to highlight the positive outcomes of its policies, with Prime Minister Keir Starmer planning interventions to stress government action on the economy. Sir Keir told the Daily Mirror he is launching an "all-out war on the cost of living," with his chief of staff describing 2026 as the "year of proof" for voters to feel the effects.
