The freeze on thresholds
The most impactful — and least visible — aspect of recent UK tax policy is the freezing of income tax thresholds. When thresholds do not rise with wage inflation, more people cross into higher tax bands as their wages increase, a phenomenon known as fiscal drag. The IFS estimates this will pull around 4 million additional taxpayers into the basic rate band by the time the freeze ends.
What this means for different earners
For someone earning £25,000, the threshold freeze has a relatively modest impact. For someone earning £45,000-£55,000 — around the higher rate threshold — the real-terms increase in their effective tax rate is more significant.
Employer National Insurance
Changes to employer National Insurance thresholds affect what businesses pay on their wage bills. An increase in employer NI rates or a reduction in the earnings threshold at which it starts affects employment costs and therefore hiring decisions.
Benefits uprating
The triple lock on state pension and an above-inflation increase to Universal Credit maintained the real value of these payments, providing a more significant cushion for benefit recipients than in some previous years.