The Chancellor hopes no one notices. Voters are starting to realise.
There is no getting around it. The NHS and social care need more money – this is the lion’s share of the budget and is where the government is experiencing the greatest growth pressure. Every serious analysis from the IFS, the OBR and the Health Foundation says that demand, staffing pressures and rising clinical complexity make extra funding unavoidable. If we want a system that works, the state will need to raise more revenue.
The question is not whether we need to pay more. The question is how.
The government’s preferred method is to freeze income tax thresholds for year after year, pushing more of people’s wages into taxation without ever having to announce an explicit rise in basic or higher-rate tax. It sounds painless. Nothing changes on the payslip. No parliamentary vote. No headlines. But it is one of the least fair ways possible to raise revenue and it hits ordinary workers far harder than the wealthy.
The Institute for Fiscal Studies has been unusually blunt about this. Their latest analysis of threshold freezes states that the impact is equivalent to raising all income tax rates by 3.5% by 2029. The Chancellor hopes no one notices that she did this, but people are starting to realise because their real living standards are not improving and the tax take continues to rise.
The numbers are stark, according to figures from the IFS. In 2021, around 59% of adults paid basic rate income tax. By 2029, that will be 72%. In 2021, 8% of adults paid higher-rate tax. By 2029, that will more than double to 17%. These are not people suddenly earning more in real terms. They are people whose wages are simply keeping pace with inflation while frozen thresholds quietly shift them into higher bands.
The Chancellor has also found another way to push people into paying more tax. By increasing the minimum wage faster than the personal allowance, she guarantees that even part-time workers are drawn into paying income tax for the first time. The IFS calculates that if the freeze is extended again, a full-time minimum wage worker will pay £137 more per year in tax compared with current policy, and £759 more than if thresholds had risen as normal.
Pensioners are now caught up in this, too. On current forecasts, the state pension will become taxable by 2027–28. Because it is not handled through PAYE, millions of older people will, for the first time, have to file Self Assessment returns. The administrative burden alone is likely to cause real anxiety, and all because the government would rather preserve the illusion of not raising taxes than levy them honestly.
If the country needs more money for health and social care, we should debate that openly. A small rise in headline tax rates, or a targeted reform of wealth and property taxation, would be more transparent, more progressive and far more honest than quietly hauling millions of ordinary workers into tax. The current approach undermines trust and tilts the system away from the liberal principle of taxing according to ability to pay.
This is where the Liberal Democrats should step forward. Voters are looking for a party that treats them as adults, is straight with them about the fiscal challenges ahead and is committed to fairness as well as responsibility. We should position ourselves as the party that can be trusted with the economy: clear about the need for sustainable public finances, serious about properly funding the NHS and social care, and honest about how to raise the money. No stealth taxes. No tricks. No hoping the public does not notice.
A fair tax system is one people can understand. Freezing thresholds until low earners, pensioners and even part-time workers are dragged into tax is not fair. It is time for the government to stop pretending it has not raised taxes.
The Tories cannot be trusted on the economy – that horse bolted with Liz Truss. Labour cannot even be trusted to look after the people who are supposedly their core constituency – working people. Meanwhile, Reform and the Greens articulate a populist message that chimes with voters’ concerns, but their policies are pure snakeoil.
This is an opportunity for the Liberal Democrats to step into the political vacuum and offer the country something better: a responsible, progressive and transparent path to funding the services we all rely on. In so doing, we can become the party the public trust on the economy.
* Tom Reeve is a Liberal Democrat councillor in Kingston upon Thames
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13 Comments
Most people, I suspect, would not object to paying more tax to fund the NHS. Unfortunately, that is not what has happened in this budget – taxes have been increased on working people so that those living on benefits with more than two children will get more benefits. There is already a problem with some people being better off living on benefits than working for- this budget increases this problem by increasing income tax on those who work for a living while also increasing benefits that some non-working families receive.
Yesterday was a good day for the tories. Badenoch did a strong (even witty) response and they will expose Labour’s manifesto breaks effectively. There’s a good chance the next election will be won by the party prepared to tackle government spending and that’s likely to be the Conservatives.
I don’t know whether Jenny Smith is aware that a Conservative government introduced the two child limit in April, 2017. It has since been consistently condemned by official Liberal Democrat spokespersons as ‘cruel’.
@ Russell. Of course you’re entitled to your opinion, Russell, but I thought Ms Badenoch’s speech yesterday was dreadful. I would gently suggest she will be long gone before the next general election if the Tories are to make any serious attempt to regain power.
Jenny, I am very sorry that you feel children should not be helped out of poverty. Last time I checked, children don’t have any choice of who their parents are, but sure, let’s push them down and tell them that we, as a society, don’t care that they weren’t as fortunate in the lottery of life as others.
The World at One interviewed a woman from Wales who has four children with her husband. When they had their children, he was employed and they were able to support them on their own. Sadly, he had to stop working due to health issues, but the Tories capped the amount of assistance they received.
The state should be a safety net for all of us who could fall on hard times. We aren’t talking about providing them with a lavish lifestyle – far from it. But purely from the perspective of enlightened self-interest, helping to take care of children now can prevent a raft of problems for society in the future.
By the way, 70% of children in poverty are in families who are in work.
@Tom Reeves. A welfare state as a safety net for hard times, yes absolutely, but as a viable long term life style option ? If we believe that children should not suffer from the circumstances of their birth, but also accept the reality that secondary poverty is a real thing and some parents will spend their benefits at nail bars and “Spoons”, surely the answer is food/clothing vouchers for the third and subsequent children ?
@David Raw. Such things are, of course, subjective, but purely as a piece of political theatre Badenoch’s put down of Reeves was brutal, behind the sofa stuff. Clearly the Tory benches loved it and even the BBC seemed vaguely impressed.
@Tom Reeve
Perhaps my views are coloured by my own experience. I have two grandchildren because my son and his partner feel they can not afford to have a third child. Is it fair that my son, who feels forced to restrict the number of children he has for financial reasons, should now be forced to pay additional taxation to support people living on benefits to have more children that he can afford? To me, this is all wrong.
@Jenny Smith
I completely understand why you feel this way. Working families are being squeezed from every direction, and it is not unreasonable to ask why life has become so hard for people who are doing everything right. But I don’t think the real unfairness is that some parents on benefits have children. The unfairness is that Britain has become a country where ordinary working families cannot afford the family size they want because of government choices on wages, housing and childcare.
The simple truth is that most families on low incomes are not having children because of the benefit system. They are having children because they want families, just like your son does. What traps them in poverty is the same thing that squeezes your son, namely, high rents, unaffordable childcare, and wages that have not kept up with living costs. That is the result of national policy, not the behaviour of poorer parents.
It’s about political choices. When the government cuts support for children, all that happens is that child poverty gets worse, social problems become more expensive, and working families like your son’s end up paying more in the long run. A fair system should support all children, whatever their parents’ situation, and it should also make sure that work genuinely pays. That means tackling the structural issues: wages, housing, childcare and the tax burden on low and middle earners (which is why I wrote this column).
So I don’t think we should pitch working families against poorer families. The real divide is between ordinary people who are being squeezed and a government that has let living costs spiral. If we fix the underlying pressures, your son would be able to afford the family he wants, and fewer families would end up relying on benefits in the first place. That is a better deal for everyone.
@Ross O’Kelly
I get where you’re coming from, nobody wants a welfare system that rewards irresponsibility. But the idea of a large group of people treating benefits as a ‘lifestyle choice’ is a political myth. Successive governments, including Conservative ones, have admitted this. The data shows that long-term, workless households are a tiny fraction of the population, and most people on benefits are working, caring, disabled, or between jobs. Punishing the entire system because of a few headlines is bad economics and bad politics.
Families are not poor because they have too many children. They are poor because wages have stagnated for 15 years, housing costs have exploded, childcare is the most expensive in Europe, and the Government has repeatedly cut support even as living costs rise. The trope about nail bars and Wetherspoons deflects attention from a political economy that has squeezed working people and low-income families alike.
Vouchers for third children sound tough, but in practice they punish children for their parents’ behaviour. They also create stigma, bureaucracy and black markets, which is why most countries that tried them abandoned them. It would cost more to administer a national voucher system than it would to properly fund child benefits in the first place.
Do we want a welfare system based on tabloid anecdotes, or one based on evidence and basic decency? If we genuinely believe children should not suffer because of who their parents are, then we cannot design policy that deliberately deprives them. The way to reduce welfare dependency is not to cut children’s support; it is to fix the conditions that trap families in poverty – wages, housing, childcare and opportunity.
That is the adult, responsible, economically literate answer. The alternative might make good headlines, but it does nothing to solve the problem and ends up costing the country more in the long run.
@Tom Reeve. Obviously any generalisation about a large group of people will be open to criticism, but, while we know that the majority of welfare claimants are in work, there is a minority whose lack of attachment to work and lack of parenting skills is not a tabloid myth, but an uncomfortable reality. Mrs. O’K is a teacher and far more left wing that I. She works in a school in a deprived sea side town in southern England. She sees children coming to school without proper schools or a coat in winter, the parents don’t work but the mother stands on the school gate, immaculately turned out, showing the other mothers her new manicure and the obligatory tats. And she will be down Wetherspoons that evening. This is not some far right fantasy and of course not every claimant lives like this, but it is real, our “lived experience”, if you like.
The Education Secretary states that no child should suffer because of the circumstances of their birth. The Education Secretary doesn’t seem to understand that while money matters, of course it does, cultural factors such as lack of roll models and a lack of aspiration are even more important. Having great, supportive parents who put their children first still represents a tail wind in life that not even well meaning socialists can do anything about.
And having children is a cause of poverty. That was recognised by Beveridge, hence the introduction of Child Benefit.
@Ross O’Kelly – I hear what you’re saying, and I don’t dismiss your wife’s experience for a second. Teachers in deprived communities see things most politicians never see, but I think there are two important distinctions to keep in mind.
The first is between individual cases and system-wide patterns. You’re absolutely right that there are families where poor parenting, low aspirations, or chaotic lifestyles harm children. That is genuinely sad, but those families are a tiny minority of the population. We should not design national welfare policy around the worst 1 or 2 per cent.
The evidence doesn’t support the idea that this minority represents a large group making a ‘lifestyle choice’. Long-term worklessness has fallen sharply over the last two decades. Even in very deprived areas, most parents on low incomes are in work or desperately trying to get into it. The stereotypes you describe do exist, but they are not the norm.
The second point is that cultural factors do matter, but they are shaped by economics, not separate from them. Role models collapse when towns collapse; aspirations fall when opportunities evaporate; family stability suffers when housing is insecure and work is precarious. It is no coincidence that the areas with the lowest social mobility and highest child poverty are the places with the weakest labour markets, the least investment, and the most expensive transport. Culture is not separate from structure: it is shaped by it.
No child should suffer for the circumstances of their birth. Of course, good parenting is a tailwind. But the job of a decent society is to soften the headwinds: to make sure children are warm, fed, safe, and educated regardless of their parents’ flaws.
We can take your wife’s experience seriously without making national policy out of the worst examples. The decent, liberal approach is to help the child, hold parents accountable where needed, and fix the conditions that allow some families to fall apart in the first place.
@Tom Reeve
Thanks for your detailed reply. I think we can debate general approaches and structural issues, but my specific comments were about the budget measure that forces working people to pay extra income tax to directly benefit those who are not working for a living, and also the fundamental unfairness of any system that means some people can be better off living on benefits than working for a living.
I do not think it acceptable that low income working people should be made to pay more income tax so that non-working people living on benefits – some of whom may already be better off than them – can receive extra benefit payments. (You may dispute the idea that some people may be better off on benefits in which case I would cite the recent report by the Centre for Social Justice on this issue.) Do you not agree that this is unfair?