Is This the Hardest Year for the Middle Class?
- TBA
- Jun 17
- 5 min read
Since the start of the new financial year in April 2026, what should have been a 'reboot' for the economy and public finances has instead evolved into a silent but widespread upward trend in the tax burden. Is This the Hardest Year for the Middle Class?
The Personal Allowance threshold remains frozen while inflation has continued to bite. An increasing number of people who previously paid no tax are being pulled into the tax net for the first time, and more middle-class earners are unknowingly being pushed into higher tax bands. This is not due to a genuine increase in wealth, but rather a passive increase in tax liability.
At the same time, from Making Tax Digital (MTD) to adjustments in corporate tax regimes, a combination of policies has left both businesses and individuals feeling unprecedented pressure.
Wages are struggling to keep pace with prices, yet the tax burden is quietly climbing.
The intersection of 'stealth taxes' and the cost-of-living crisis is directly impacting the income and outgoings of every British household.
What is happening for the Middle Class?
An annual assessment by the International Monetary Fund (IMF) indicates that the UK's tax-to-GDP ratio will rise from 37.6% to 42.1% between 2024 and 2031, an increase of 4.5 percentage points.
This increase is not only the highest among all the countries analysed, but also five times the average of the 38 advanced economies (0.9 percentage points). In other words, the UK is experiencing an 'accelerated' expansion of its tax burden, a trend set to continue over the coming years.
Chancellor Rachel Reeves suggests that this trajectory is almost inevitable.
The fiscal black hole left by the Covid-19 pandemic, the worsening issue of an ageing population, and the economic shocks stemming from Middle Eastern conflicts are all continuously driving up government spending. Without a corresponding increase in revenue, raising taxes has become a primary method to plug the gap.
According to the latest estimates from the Institute for Fiscal Studies (IFS), nearly a quarter of all taxpayers will be pushed into higher tax bands by 2031.
Why does the tax burden keep climbing?
The drivers behind the rising UK tax burden are primarily focused on three areas:
Freezing of tax thresholds:
Since 2021, the starting threshold for Income Tax has remained unchanged and will continue to be frozen until 2028. On the surface, the tax rate has not changed, but as wages rise due to inflation, an increasing number of people are passively crossing the line into higher tax bands.
This phenomenon is known as 'fiscal drag', and its essence is to increase the tax burden without raising the headline rate.
Increased corporate tax burden:
In the 2024 Budget, the employer National Insurance rate was raised from 13.8% to 15%. This means that businesses must pay the government more for every employee they hire.
Although this tax is borne directly by businesses, in the long term, it may indirectly affect workers by depressing wage growth or reducing hiring.
Significant pressure on government spending:
On the one hand, the UK's debt interest payments are expected to exceed £100 billion this year; on the other hand, an ageing population is rapidly driving up pension and welfare costs.
Against this backdrop, even just to maintain the current level of public services, the government must continually increase its tax revenue.
The tax burden is not the highest, but feels ‘heavier'
Among G7 nations, the UK's tax burden is not the highest.
France's tax burden is around 46% of GDP, and Germany's is roughly 39%, both higher than the current UK level; the US and Canada are lower at 28% and 34% respectively.
However, structural issues within the UK tax system make the 'perceived pressure' on taxpayers much greater.
For instance, France utilises a 'family quotient' system, taxing based on the household, which effectively reduces the burden on single-income families. While social security contributions in Germany are relatively high, they are shared more evenly between employers and employees, and employ a progressive adjustment mechanism. The US and Canada generally lack 'cliff-edge' tax thresholds, making changes in tax liability much smoother.
In contrast, the UK has several distinct income thresholds; once crossed, the tax burden rises sharply. This 'bracket jumping' effect leaves many feeling a noticeable shrinkage in their take-home pay.
The freezing of tax thresholds is gradually altering the UK's tax structure and having a differential impact on various income groups.
Low earners see limited take-home pay growth:
For lower-income earners, those previously earning below the £12,570 Personal Allowance are being pulled into the 20% basic rate band as their wages rise. While their income appears to increase, the actual post-tax growth is limited. For example, a worker with a starting salary of £15,000 could pay an extra £3,000 in tax over the entire freeze period.
Middle-income earners face a clearer impact:
Someone with a starting salary of £35,000 could see their earnings reach approximately £53,000 by 2031 under normal wage growth, thereby crossing the £50,270 threshold and entering the 40% tax band.
Consequently, this group will not only see their income growth partially offset, but they may also bear thousands to tens of thousands of pounds in additional Income Tax during the freeze.
High earners are equally unable to escape:
Between £100,000 and £125,140, the Personal Allowance is gradually tapered away, creating an effective marginal tax rate of around 60%.
As this threshold has not been adjusted since 2010, the number of people affected has tripled to approximately 1.6 million. Furthermore, once this bracket is crossed, parents also lose up to £2,000 per child in tax-free childcare subsidies.
Increased tax burden for families with children:
For families with children, the situation is even more complex. The Child Benefit charge now starts tapering at £60,000 and is completely withdrawn at £80,000.
Due to the frozen thresholds, an increasing number of families are being caught by this mechanism. When combined with Income Tax, National Insurance, and student loans, the effective marginal tax rate for some families can exceed 60%.
More pensioners will pay tax:
Pensioners are also beginning to feel the squeeze. It is projected that by 2027, the State Pension will exceed the Personal Allowance threshold, meaning that a growing number of retirees will start paying Income Tax for the first time.
By 2031, this newly taxable demographic is expected to reach one million people.
The view from TB Accountants
The rising tax burden in the UK is not the result of a single policy change, but rather the culmination of multiple structural factors.
From frozen thresholds to demographic shifts, and from debt pressures to expanding public expenditure, this trend is unlikely to reverse in the short term. The more critical uncertainty lies in the government's next fiscal policy choices.
Faced with mounting financial pressure, the UK may be forced to continue weighing up tax rises, spending cuts, or increased borrowing. These choices will not only influence the budget arrangements later this year but could also dictate the trajectory of the UK's overall tax environment for years to come.
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