In her recent Budget address, Rachel Reeves announced further tax increases. While acknowledging that “ordinary people” will contribute more in tax in the coming years, the Chancellor also stated that those with the “broadest shoulders” would be expected to bear a greater share of the burden.
Reeves emphasized that other Budget provisions – such as freezing rail fares in England and fuel duty across the UK, alongside reducing certain costs associated with domestic electricity bills – are intended to alleviate the cost-of-living pressures faced by many families.
Government estimates suggest that eliminating the two-child limit on benefits will reduce relative child poverty by 450,000 by the end of the Parliament, increasing average incomes in affected families by £5,310 annually.
But do these claims withstand scrutiny?
BBC Verify has analyzed the anticipated financial impact of the Budget on various demographic groups.
The specific impact of the Budget will vary based on the individual circumstances of each household.
For example, individuals with low incomes and no more than two children will not benefit from the removal of the two-child benefit cap. Conversely, those with a modest income who drive electric vehicles may be negatively affected by the introduction of a mileage charge for EVs.
Similarly, higher-income individuals who heavily utilize petrol vehicles or consume significant amounts of domestic energy might benefit disproportionately from measures primarily designed to assist lower-income households with the high cost of living.
The Resolution Foundation think tank has modeled representative households to illustrate these diverse effects:
Their analysis indicates that, considering all tax and benefit changes since the Autumn Budget in 2024, lower-income households are more likely to experience financial gains, while the opposite is true for higher-income households.
The Foundation also finds that pensioner households are more likely to benefit from the Budget measures than working-age households, with 56% benefiting compared to only 33% of families with children.
Budget measures such as the new high-value council tax surcharge in England (projected to raise £400 million annually by 2029-30) and increased income tax rates on property, savings, and dividend income (projected to raise £2.1 billion annually) will disproportionately affect higher earners, as wealthier individuals tend to possess more property and derive more income from these sources.
The same applies to the plan to levy National Insurance on pension contributions made through workplace salary sacrifice schemes (projected to raise £4.7 billion).
Treasury analysis estimates that by 2028-29, the tax measures included in the Budget will reduce the incomes of the top 10% of UK earners by approximately £2,000.
In contrast, middle-income earners will see their incomes reduced by around £300, while the incomes of the bottom 20% of earners will be approximately £200 lower.
The extension of the income tax threshold freeze by an additional three years from 2027-28 will negatively affect most earners. This measure will push more individuals – including those with relatively modest incomes – into higher tax brackets as their incomes rise with inflation.
Those currently earning below the personal allowance of £12,571 will, as wages rise but thresholds remain constant, become taxpayers for the first time. The Office for Budget Responsibility (OBR) estimates that as many as 780,000 additional people could be paying tax by 2029-30.
Treasury analysis also suggests that lower-income individuals will benefit significantly more than higher earners from measures such as reducing costs on electricity bills, freezing fuel duty, and abolishing the two-child limit, with the top 30% of earners experiencing minimal cash gains.
The Institute for Fiscal Studies has compiled its own analysis incorporating the main Budget measures.
These measures include:
The think tank concludes that by 2030-31 the net impact of these measures will be an increase of between £220 and £290 in the incomes of the lowest 20% of earners, while the incomes of the top 10% will decrease by around £700.
However, it’s important to remember that these calculations only reflect the impact of the Budget measures.
The ultimate impact on individuals’ overall incomes, regardless of their position within the UK income distribution, will depend on the broader economic performance.
The OBR’s downward revision of its overall UK growth forecast now projects average UK real household disposable incomes (RHDI) per person – the Government’s chosen metric for measuring living standards – to grow by an average of only 0.5% per year by the end of the Parliament.
According to the Resolution Foundation, this would translate to average income growth of just £740 (in 2025-26 terms) over the course of the Parliament, making it the second-worst Parliament on record for income growth.
Additional reporting by Phil Leake
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