Budget 2025: Labour's Tax Changes and Impact on Workers and Pensioners
The Centre for Policy Studies (CPS) alleges that Labour's budget raises taxes on workers by extending the freeze on the personal allowance and tax thresholds to 2031. This move effectively impacts higher-rate taxpayers as wages increase. For example, a typical earner with a salary of £50,000 is forecast to be about £505 worse off in real terms by 2031 despite an expected wage growth of over £6,000.
On the other hand, pensioners and welfare recipients are expected to benefit from the government's triple lock and related measures. Pensioners are anticipated to be at least £306 better off in real terms by 2030-31. Furthermore, a state pension recipient exempt from income tax at the personal allowance threshold could be about £537 better off in real terms. Unemployment benefit recipients might gain around £290 due to increases in universal credit and other supportive measures.
The Treasury argues that the freeze on personal allowances and thresholds is both fair and necessary. Budget measures also include raising minimum thresholds, a £150 energy bill relief, and freezes on prescription fees, fuel duty, and rail fares—the latter a freeze occurring for the first time in 30 years.
Reactions to the budget have been mixed. Daniel Herring of CPS accused Labour of quietly increasing the tax burden on workers while protecting pensioners. Conservative shadow chancellor Sir Mel Stride criticized Labour's Rachel Reeves for lacking control over spending. Meanwhile, Labour leader Keir Starmer promised positive changes in people's pockets this year.
