‘Sticking to Labour manifesto pledge costs millions of workers’, Resolution Foundation says

The influential Resolution Foundation has warned that more tough budgets lie ahead, as Britain continues to grapple with weak economic growth—an obstacle the thinktank says “has yet to be overcome”.

According to the foundation, Labour’s decision to freeze income tax thresholds, rather than raise income tax rates, has left millions of low- and middle-income earners worse off. Chief executive Ruth Curtice said many workers “would have been better off with tax rates rising than with thresholds being frozen”.

Chancellor Rachel Reeves confirmed in her Budget that the point at which people enter higher tax bands will remain unchanged. This “fiscal drag” means pay rises will push more people into higher tax brackets, increasing the tax they owe.

Reeves said she could not raise income tax because Labour had pledged not to increase taxes on working families during the election campaign. But critics argue the pledge has effectively been broken, given the £26bn increase in the overall tax burden in this budget.

Pressed by Sky News on whether she had breached her commitment, Reeves said:
“I recognise that freezing thresholds for another three years from 2028 means working people will pay a bit more, but I’ve kept that contribution to a minimum.”

Prime Minister Sir Keir Starmer, however, insisted the manifesto promise remained intact.

What the freeze means for taxpayers

The Institute for Fiscal Studies (IFS) estimates that:

• Basic-rate taxpayers will pay £220 more per year

• Higher-rate taxpayers will pay £600 more annually

Measures welcomed

Despite concerns, the Resolution Foundation praised several parts of the Budget, including:

• Scrapping the two-child benefit cap, which had restricted the number of children families could claim for

• Reducing energy bills by removing certain levies

  • The chancellor announced a £150 annual cut

  • The foundation predicts typical bills will fall by around £130 for the next three years, before support tapers off

Both the IFS and the foundation also welcomed Reeves’ move to increase her fiscal headroom, giving the government a stronger buffer against market volatility. The IFS said this decision should lead to “greater stability and less policy speculation”.

Borrowing outlook

The Office for Budget Responsibility (OBR) reported that the Budget will:

• Increase borrowing by £5bn a year on average over the next three years

• Reduce borrowing by roughly £13bn a year in the following two years

More difficult budgets ahead

Despite government efforts, the Resolution Foundation warned that sluggish economic growth continues to threaten progress.

“With growth still a hurdle that remains to be cleared, we can expect plenty more bracing budgets,” Curtice said.

The thinktank noted that pre-Budget fears were exaggerated, saying the final forecasts were “better than many had expected”.