Workers earning £20,000 face losing £684 each from bank account

Workers have been warned the end to the tax threshold freeze in 2028 will leave them up to £684 worse off. Labour Party Chancellor Reeves announced her first Budget — the first Labour Budget in 14 years and the first ever Budget delivered by a female chancellor — to the House of Commons on Wednesday afternoon.

AJ Bells warns, if you had a salary of £20,000 before the freeze kicked, you would pay an extra £684.50 by 2027/28. The Chancellor said in her speech that the only way to do this would be to “invest, invest, invest”, and compared this Budget to previous historic Budgets delivered by the Labour governments in 1945, 1964, and 1997.

Reeves’ Budget will raise a number of taxes in order to help increase day-to-day spending from 2024-25 onwards by 1.5 per cent in real terms. Spending will increase by almost £70bn over the next five years, a little over 2 per cent of GDP, with the Chancellor claiming these decisions prioritise the interests of “working people”.

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“I know that this is a difficult choice, I do not take this decision lightly,” Reeves said. She added that she knew the impacts of this measure will be felt “beyond businesses, too”, and therefore announced that to soften the blow, 865,000 small businesses will not pay any National Insurance at all next year, as the Employment Allowance will be increased from £5,000 to £10,500.

The tax bracket freeze will inevitably impact working people, however, according to Melanie Pizzey, CEO and founder of the Global Payroll Association. Speaking to HR magazine, she said: “The government may claim to have kept its pledge not to directly increase taxes for working people, however, the decision to maintain the freeze on tax thresholds is, in effect, the same as increasing the rate of tax.

“The continued fiscal drag due to these measures will pull more workers into higher tax brackets and, when combined with other existing legislation, will create severe cliffs for some working families. Of course, the impact of fiscal drag could well be minimised should workers fail to see their earnings increase in the first place. This is a very real possibility given the fact that businesses have been hit with an increase in the national living wage and NICs, although there will be exemptions for small businesses.”