UK Living Standards Face £400 Hit From Taxes and Bills, Think Tank Says

Higher taxes and bills will leave the typical UK household £400 ($517) worse off in the coming fiscal year despite an inflation-busting increase in the minimum wage, analysis by the Resolution Foundation think tank found.

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Bloomberg News

Philip Aldrick

Published Apr 02, 2025  •  2 minute read

A man removes five and ten pound sterling banknotes from a wallet in this arranged photograph in London, U.K., on Tuesday, Sept. 19, 2017. Strategists are revising their estimates for the currency after its best week since 2009 saw it gain almost 3 percent as the Bank of England signaled it would look to withdraw stimulus "over the coming months." Photographer: Chris Ratcliffe/Bloomberg Photo by Chris Ratcliffe /Bloomberg

(Bloomberg) — Higher taxes and bills will leave the typical UK household £400 ($517) worse off in the coming fiscal year despite an inflation-busting increase in the minimum wage, analysis by the Resolution Foundation think tank found.

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Close to half the total, £170, is due to the ongoing freeze in income tax thresholds as well as Labour’s £26 billion increase in national insurance contributions on employers, which kicks in on Sunday and will be passed on to households “through lower wage growth,” Resolution said.

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Rising council taxes, a sub-inflation increase in benefits and higher water and energy bills will mean the median household ultimately feels poorer.

Labour has promised to lift living standards by the end of the parliament, as measured by real household disposable incomes per head. At the Spring Statement last week, the Office for Budget Responsibility forecast growth on that measure of 0.5% a year on average to 2030, prompting Chancellor Rachel Reeves to say people would be “over £500 a year better off under this government.” 

However, the OBR pointed out that living standards would weaken between 2025-26 and 2027-28 and the subsequent recovery depended on the tax threshold freeze ending in 2028-29, allowing workers to keep more of their earnings.

With US President Donald Trump unleashing a wave of new tariffs, the OBR has warned that a resulting trade war would likely knock 1% off UK GDP and force Reeves to raise taxes to meet her fiscal rules. In that event, economists expect her to freeze tax thresholds for longer.

Adam Corlett, principal economist at Resolution, said: “The new tax year has arrived, and brings with it higher taxes, even larger bill increases, and benefits that aren’t keeping pace with the rising cost of living.”

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The “chink of light in an otherwise gloomy outlook” comes from the bumper 6.7% rise in the National Living Wage, which will benefit millions of workers. But it is more than offset by the £170 NICs and threshold freeze impact, an £80 annual increase in Council Tax, £120 increase in water bills, £111 in energy bills and a sub-inflation 1.7% uprating in working age benefits.

“Bringing together all these changes and more, the disposable income of a typical working-age household is projected to fall by 1% – or £400 – in real-terms this financial year,” Resolution said.

Households across the poorest half of the country are set for an even sharper 2% fall, equivalent to £300. “This will represent the first year of a five year period that will see incomes fall a total of 3% – or £500 –for the bottom half of the income distribution,” the think tank added.

To protect the most vulnerable, Corlett said a scheduled 2% real terms increase in the standard allowance of Universal Credit, the main benefit, should be brought forward six months to October at a one-off cost of £400 million to help six million households.

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