Analysis: Budget 2025 Hits Workers Hard, Benefits Pensioners

The recent budget announcement has prompted discussions about its impact on workers and pensioners. According to the Centre for Policy Studies (CPS), the 2025 budget has unintended consequences that primarily affect employees while benefiting the elderly and welfare recipients.

Impact of the 2025 Budget on Workers and Pensioners

Rachel Reeves, the Chancellor, did not increase income tax or VAT. However, she extended a freeze on National Insurance contributions until 2031. This freeze means that as wages rise, more employees will face higher tax rates, effectively increasing their tax burden over time.

Financial Implications for Workers

• The CPS projects that an employee earning £50,000 will be £505 worse off in real terms by 2031.
• The forecast predicts an increase in salary by over £6,000, yet the tax implications will negate this gain.
• The Treasury has defended the freeze as fair, projecting it could raise about £23 billion by 2030-31.

Daniel Herring, CPS head of economic and fiscal policy, expressed concern over the freezing of tax thresholds. He noted that those moving into higher tax bands will feel the impact the most.

Benefits for Pensioners and Welfare Recipients

On a brighter note for pensioners, the budget ensures that those reliant on the state pension receive increases in line with inflation. Thanks to the triple lock policy, an elderly individual can expect to be at least £306 better off in 2030-31.

• Pensioners may also be £537 better off if exempt from income tax beyond the personal allowance.
• Individuals on unemployment benefits are projected to see an increase of £290 due to changes in universal credit rates.

The Government’s Justification

In defending the budget, a Treasury spokesman highlighted measures like the increase in the national living wage and a £150 reduction in energy bills. Additionally, the budget froze prescription fees and halted rail fare increases for the first time in 30 years.

Despite these measures, Conservative shadow chancellor Sir Mel Stride criticized Ms. Reeves for her approach, stating that hardworking individuals are bearing the burden of these policies.

As the effects of the budget unravel, the divergence between the treatment of workers and pensioners highlights a crucial conversation about fairness and fiscal responsibility in the UK’s evolving economic landscape.