UK households face subdued gains in spending power despite the Budget. Drawing on the Office for Budget Responsibility’s forecast, the Institute for Fiscal Studies (IFS) says real household disposable income per person is set to grow by about 0.5% a year across this Parliament - a trend Helen Miller described as “truly dismal” compared with past decades.
A central driver is the decision to extend the freeze on income tax and National Insurance thresholds for three further years to 2030–31. The OBR estimates that, by 2030–31, 5.2 million more individuals will be paying income tax, 4.8 million more will be in the higher-rate band, and about 600,000 more will be in the additional-rate band - taking the share of higher- or additional‑rate taxpayers to 24%, up from 15% in 2021–22.
From April 2029, only the first £2,000 of employee pension contributions made through salary sacrifice will be exempt from National Insurance. Contributions above that amount will be subject to both employer and employee NICs. The OBR estimates this will raise £4.7bn in 2029–30 and £2.6bn in 2030–31, with yields tempered by behavioural changes. HM Treasury has published operational guidance ahead of Finance Bill legislation.
Ministers argue the approach does not breach Labour’s 2024 tax pledge because rates of Income Tax, National Insurance and VAT remain unchanged. Prime Minister Keir Starmer said the government had “kept to our manifesto” while acknowledging “everybody” was being asked to contribute; Chancellor Rachel Reeves likewise said working people would “pay more” via frozen thresholds but that the contribution had been kept to a minimum.
Alongside revenue measures, the Treasury says it will remove around £150 from average household energy bills from April 2026 by ending the Energy Company Obligation levy and moving 75% of the Renewables Obligation cost to general taxation during the current spending review period. The package is framed as disinflationary in the near term.
Other cost-of-living steps include a one‑year freeze of regulated rail fares in England from March 2026 and a further freeze of NHS prescription charges at £9.90. These are presented as near‑term bill reductions while the wider fiscal tightening builds later in the forecast.
Taxation of income from assets will rise. From April 2026, the ordinary and upper dividend rates increase by 2 percentage points; from April 2027, the basic, higher and additional rates on savings and property income each rise by 2 points, with separate property income rates set at 22%, 42% and 47%. The Treasury says these steps narrow gaps between tax on work and tax on income from assets.
Online gambling duties will also increase. Remote Gaming Duty rises from 21% to 40% in April 2026 and a new 25% remote betting rate is introduced from April 2027 (with UK horseracing excluded), while Bingo Duty is abolished from April 2026. HMRC expects the package to raise over £1bn a year by the end of the forecast.
Property taxation is reshaped at the top end through a High Value Council Tax Surcharge from April 2028. Owners of homes valued above £2m in England will pay an additional annual charge, banded at £2,500 for £2.0–£2.5m properties up to £7,500 above £5m, collected alongside council tax. Fewer than 1% of properties are expected to be in scope.
The OBR’s November outlook points to fading momentum in living standards after 2024–25. It expects real household disposable income per person growth to slow sharply - from about 3% in 2024–25 to 0.5% in 2025–26 and around 0.25% a year thereafter - reflecting weaker wage growth and higher personal taxes.
IFS analysis characterises the forecast revision as modest overall and says there was “no big fiscal repair job” to do, while arguing the government’s stated growth mission is not yet matched by reform. It also contends that threshold freezes and the pension salary sacrifice change mean National Insurance will rise, which it “would call…a breach of the manifesto”.
The Resolution Foundation reaches similar conclusions on living standards, projecting average per‑person income growth of roughly 0.5% a year across this Parliament and describing the five‑year outcome as among the weakest on record. Distributional work points to stronger relative gains from public‑service spending than from cash incomes next year.