British workers face a significant financial hit from what experts are calling a 'hidden tax bomb' in the recent Autumn Budget, with potential losses averaging £555 per person by 2030.
Chancellor Rachel Reeves has decided to maintain income tax thresholds at their current levels for two years while abandoning plans to increase the headline rate, avoiding a breach of manifesto promises but creating what analysts describe as a stealth tax through fiscal drag.
The Frozen Thresholds Impact
The two-year freeze on tax thresholds will generate additional revenue for the Treasury as inflation and wage growth push more workers into higher tax brackets. This phenomenon, known as fiscal drag, represents a significant shift in the government's approach to taxation.
According to data from Finder, this policy will have substantial consequences: approximately 3.3 million people will begin paying income tax for the first time by 2030, while four million will be pulled into the higher rate band and 1.7 million will become additional rate taxpayers.
The financial impact varies by income level. A worker earning £40,000 annually would need to pay an extra £321 in tax between 2028 and 2030 when thresholds are eventually unfrozen. Meanwhile, someone on £80,000 per year would see their tax bill increase by £961 over the same period.
Pension and Savings Changes
The Budget also introduces significant changes to pension contributions and savings allowances. Currently, there's no limit on pension contributions using salary sacrifice arrangements, but the Chancellor is considering capping tax-free salary sacrifice at £2,000 annually.
This change would mean a worker earning £40,000 would pay an additional £74 in tax between 2028 and 2030, while someone on £80,000 would face an extra £336 tax bill, assuming they maintain the same contribution levels.
Savings are also affected by reductions to the ISA allowance, which drops from £20,000 to £12,000. For someone using their full allowance with a 5% interest rate, this could mean an annual tax bill of £80, or £160 over the two-year period. Higher earners on £80,000 would face even steeper costs, paying £160 annually in interest tax or £320 over two years.
Political Fallout and Response
The Budget has generated significant political tension within the Labour Party. One senior Labour MP warned that Chancellor Reeves "will end up having to go after this debacle of a budget" and cautioned against any further attempts to U-turn on ending the two-child benefit limit, suggesting it would "lead to a complete revolt".
Another Labour MP reported that Prime Minister Keir Starmer had been told by numerous parliamentary colleagues that he was "losing the room" but had "refused to listen to criticism". The source added: "They don't know what they are doing and there is 10 days left of this mess."
Downing Street defended the measures, stating: "The chancellor has been clear on the need to deliver stability in the public finances. As she said last week, one of the objectives of the budget is to build more resilient public finances with the headroom to withstand global turbulence."
With millions of workers facing increased tax burdens through frozen thresholds and reduced allowances, the Autumn Budget's long-term financial implications are becoming increasingly clear to households across the UK.
