The chancellor’s Spring Statement brought one immediate reassurance: no new tax rises were announced by Rachel Reeves.
However, that does not mean the tax burden will remain unchanged. Several previously announced policies are still due to take effect, with the biggest impact coming from fiscal drag.
Fiscal drag occurs when income tax thresholds are frozen while wages rise. As earnings increase, more people are pushed into higher tax bands, meaning a larger share of income is taxed. In last year’s Budget, the Government extended the freeze on income tax thresholds until 2031. According to analysts, the additional revenue generated by this move is roughly equivalent to adding 1p to the basic rate of income tax.
New forecasts released alongside the Spring Statement show that the UK’s overall tax burden is expected to continue rising. By 2031, taxes are projected to account for around 38% of national income, the highest level on record.
These projections were finalised just before geopolitical tensions escalated following an attack on Iran, which triggered a sharp rise in energy prices. It remains unclear how long that volatility will continue. If higher prices persist, economists believe the Government may struggle to end the fuel duty freeze in the next Budget.
There are also wider economic risks. Higher inflation, rising interest rates and slower economic growth could place further pressure on the public finances and increase the likelihood that the chancellor breaches her own fiscal rules.
The Office for Budget Responsibility has also highlighted additional spending pressures, particularly in defence and healthcare.
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