Budget 2025 Introduces Stealth Taxes by Freezing Personal Allowances to 2031
Budget 2025 extends the freeze on personal allowance and higher-rate tax thresholds until 2031, effectively delaying tax relief despite rising wages. The Centre for Policy Studies (CPS) describes this approach as a stealth tax that raises taxes on millions without increasing headline tax rates. Although this policy does not raise income tax, national insurance contributions, or VAT, it is projected to generate about £23 billion in revenue by 2030-31.
According to CPS forecasts, a typical earner making £50,000 will be approximately £505 worse off in real terms by 2031 due to the threshold freeze. However, pensioners and some welfare recipients are expected to benefit. Triple lock increases could deliver at least £306 in real terms for pensioners by 2030-31, with those avoiding income tax potentially gaining £537. Unemployment benefit recipients could also see about £290 more from higher universal credit payments.
The Treasury defends the policy as fair and necessary, highlighting offsetting measures such as increases to the National Living Wage and Minimum Wage, a £150 energy bill discount, extended freezes on prescription fees and fuel duty, and rail fares frozen for the first time in 30 years. This policy forms part of Labour’s two consecutive tax-raising Budgets. Notably, Reeves had previously criticized threshold freezes while in opposition, and Keir Starmer has pledged positive changes accessible to people’s pockets this year.
