Thousands of UK workers face a significant financial hit after the government confirmed it will extend a freeze on income tax thresholds for another three years.
The 'Stealth Tax' Impact on Pay Packets
Following the Labour Party's Autumn Budget, income tax thresholds will remain frozen until 2031. This policy, often labelled a 'stealth tax', erodes take-home pay over time by dragging more people into higher tax bands as their wages rise with inflation.
New analysis from Standard Life, part of Phoenix Group, quantifies the stark cost. By the 2031 tax year, compared to if thresholds had risen with inflation since the freeze began in 2021:
- A worker earning £30,000 will pay an extra £1,476 in income tax and National Insurance.
- Someone on £60,000 will pay £2,838 more.
- A higher earner on £80,000 will face an additional £4,420 in tax.
A Deep Generational Divide in Reaction
The Budget announcement has revealed a sharp contrast in sentiment between age groups. Standard Life's research shows net support for the move among 18–34-year-olds stands at +36%. In contrast, net support plunges to -29% for the over-55 age group.
Mike Ambery, Retirement Savings Director at Standard Life, commented on the split. "The Budget has landed very differently depending on where people are in life," he said. "Younger adults see room for optimism - many support steps like the rise in the national living wage, which perhaps gives them a sense that the system is beginning to move in their favour."
"However, it seems older generations feel as though the rug is being pulled under them at the worst possible moment. Even measures designed to shield retired households haven’t shifted that sentiment," Ambery added.
Long-Term Concerns for Retirement Savings
Experts warn the combined pressure of frozen tax bands and potential changes to pension savings incentives could undermine financial security. Ambery highlighted the risk of complicating the savings landscape.
"Salary sacrifice has been one of the most reliable tools for helping people make every pound of their savings go further. Changing it now risks making saving feel harder at a time when most people are already under-saving for retirement," he stated.
"Combine that with frozen tax bands quietly pushing more people into higher rates of tax, and the sense of financial pressure only grows. If the system becomes more complicated and less rewarding, people may lose trust in pensions – which is a risk none of us can afford."
Ambery concluded with a call for stability: "This is a moment for clarity and stability. Pensions are for the long-term and any future reform should give people more certainty about their future, not less."
The research suggests the generational reaction may stem from forward-looking anxieties, with older adults concerned about a system becoming harder to navigate for future generations.
