Budget 2025 analysis finds workers lose out as pensioners and benefit claimants gain
Workers are set to be worse off over the coming years while pensioners and people on benefits see their incomes rise, according to a new analysis of the government’s tax and spending plans.
The findings focus on decisions taken by Chancellor Rachel Reeves in her November Budget, where she chose to extend the freeze on income tax and national insurance thresholds until 2031. Although headline tax rates were left unchanged, the policy means more people will be pulled into higher tax bands as wages rise with inflation.
Budget 2025 analysis
The Treasury has defended the move as both fair and necessary, arguing it will help fund priorities such as cutting NHS waiting lists and reducing public debt. Prime Minister Keir Starmer has said households will begin to feel positive changes to their finances during 2026.
However, an analysis by the Centre for Policy Studies suggests many workers will feel the opposite effect. Using inflation and wage growth forecasts from the Office for Budget Responsibility, the think tank calculated that someone earning £50,000 today would be £505 worse off in real terms by 2030 to 31, even though their salary is expected to rise by more than £6,000 over that period.
The study paints a more favourable picture for those whose income comes from the state. Pensioners benefiting from the triple lock, which guarantees increases in line with inflation, earnings or 2.5 percent, whichever is highest, are expected to be at least £306 better off in real terms. If state pension payments remain exempt from income tax even when they exceed the personal allowance, that gain could rise to £537.
People receiving standard universal credit are also forecast to gain, with an estimated real terms increase of £290 by 2030 to 31 following planned benefit uprating.
Daniel Herring, head of economic and fiscal policy at the Centre for Policy Studies, said the effect amounted to a quiet tax rise on workers. He argued that freezing personal allowances would hit everyone, but would be felt most sharply by those dragged into higher tax bands, leaving some workers poorer despite pay rises.
He added that while employees face fiscal drag, both the state pension and universal credit are set to become more generous in real terms, creating a growing divide between those earning wages and those supported by the state.
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Ms Reeves has previously criticised similar freezes imposed by earlier Conservative governments, but defended her decision at the Budget by saying everyone was being asked to make a contribution to stabilise the public finances.
A Treasury spokesperson said the government had taken steps to ease pressure on households, including increasing the national living wage and minimum wage, cutting £150 from energy bills, extending freezes on prescription charges and fuel duty, and holding rail fares at current levels for the first time in three decades.
Conservative shadow chancellor Sir Mel Stride accused the government of lacking the resolve to control spending, saying hardworking people were paying the price for Labour’s approach.
