Typically, when you lose money on budget day, it’s because a raft of tax hikes are announced. Remember the swingeing budgets of the post-financial crash years?
This time, in Budget 2026 however, it’s a case of little, or no change, being almost as dangerous to your pocket. The decision of the Government to leave the vast majority of tax bands and credits as is, means that anyone who gets a pay rise next year, will end up paying more tax on it, as the income tax system fails to keep up with wage growth.
“Next year, more people should expect to enter the tax net, slide into the 40 per cent bracket, and see tax credits lose their real value,” says Katie O’Neill, tax director at PwC.
“With wage inflation leading to higher wages, the absence of adjustments to tax bands and credits means that the average taxpayer will effectively pay more tax. Stagnant bands and credits are leaving taxpayers feeling the pinch.”
Known as bracket creep, this issue arises when rising wages drive incomes into higher tax brackets.
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