Personal tax threshold warning for 'every working household' as £400 bill looms

A think-tank has forecast that working-age households are set to be £400 poorer on average in the upcoming year due to income squeezes and rising bills.

The Resolution Foundation warns of a "triple hit" as the new tax year begins in April, with households grappling with the effects of tax, increased utility bills, and benefits failing to keep up with living costs.

The Foundation anticipates that long-standing freezes to personal tax thresholds, which have been confirmed by Chancellor Rachel Reeves, will result in some individuals paying more tax, while hikes in employer national insurance (NI) will indirectly affect households through slower wage growth as employers offset costs.

Furthermore, the report highlights that escalating utility bills and council tax will exert additional strain on household budgets. The Foundation, which aims to enhance living standards for low-to-middle income earners, predicts that working-age benefits will not keep up with inflation this year.

It also warns that low-income renters will feel the pinch due to a freeze on local housing allowance.

However, the Foundation does see a silver lining amidst the gloom, describing increases in the national living wage as a "chink of light in an otherwise gloomy outlook". From April, the national living wage for those aged 21 and over will rise from £11.44 per hour to £12.21 per hour.

Additionally, the national minimum wage for 18 to 20 year olds will increase from £8.60 to £10 per hour.

The Resolution Foundation has issued a stark warning, revealing that the disposable income of an average working-age household in the UK could plummet by £400 in real terms during 2025/26 compared to 2024/25 when various changes come into force.

The Foundation suggests that while many financial strains are out of Government reach, prompt actions such as advancing universal credit standard allowance increases could alleviate budget pressures for families.

Adam Corlett, the principal economist at the Resolution Foundation, highlighted the dire situation, stating: "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.

"The typical household is now projected to be £400 worse off this financial year, due to a combination of weakening earnings growth, rising housing costs, taxes and bills, and benefits struggling to outpace inflation."

He added that, with households grappling with escalating expenses, the Government has the means to offer relief through an early roll-out of next year's universal credit increase, proposing that it be brought forward to this October.

Challenged with these comments, a Government spokesperson confidently replied: "Living standards, measured by the broader RHDI (real household disposable income) per capita measure, are growing at their fastest rate in two years."

Moreover, the spokesperson pointed to the administration's commitment to enhancing fiscal health: "We're also putting more money into people's pockets by boosting the minimum wage by up to £1,400 a year, freezing fuel duty and protecting working people with no rise in their national insurance, income tax or VAT."