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

Sticking to Labour's manifesto pledge and freezing income tax thresholds rather than raising income tax has hurt low- and middle-income earners, an influential thinktank has said.

Millions of these workers "would have been better off with their tax rates rising than their thresholds being frozen", according to the Resolution Foundation's chief executive, Ruth Curtice.

"Ironically, sticking to her manifesto tax pledge has cost millions of low-to-middle earners", she said.

Chancellor Rachel Reeves announced in her budget speech that the point at which people start paying higher rates of tax has been held. It means earners are set to be dragged into higher tax bands as they get pay rises.

The chancellor felt unable to raise income tax as the Labour Party pledged not to raise taxes on working people in its election manifesto.

But many are saying that pledge was broken regardless, as the tax burden has increased by £26bn in this budget.

When asked by Sky News whether Ms Reeves would accept she broke the manifesto pledge, she said on Thursday: "I do recognise that yesterday I have asked working people to contribute a bit more by freezing those thresholds for a further three years from 2028."

"I do recognise that that will mean that working people pay a bit more, but I've kept that contribution to an absolute minimum".

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As a result of the freeze in income tax bands, another closely watched thinktank, the Institute for Fiscal Studies (IFS), said a basic-rate taxpayer will pay £220 more tax per year, while a higher-rate taxpayer will be charged £600 more annually.

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The Resolution Foundation thinktank, which aims to raise living standards, welcomed measures designed to support people with the cost of living, such as the removal of the two-child benefit cap, which limited the number of children families could claim benefits for.

The announced reduction in energy bills through the removal of as yet unspecified levies was similarly welcomed.

The chancellor said bills would become £150 cheaper a year, but the foundation said typical energy bills will fall by around £130 annually for the next three years, "though support then fades away".

Credit was also given to Ms Reeves for increasing the financial cushion she has against market shocks, like a spike in energy prices.

This is part of her self-imposed fiscal rules to bring down debt and balance the budget by 2030.

As a result, less policy speculation and more stability can be expected.

"The decision to increase her headroom, when she didn't strictly need to, deserves credit," said economics research institute, the IFS.

"It means that it will require a larger shock to blow the chancellor off course. This in turn should mean that we can expect a period of greater stability and more muted policy speculation."

More money, however, will be borrowed as a result of the budget, said independent forecasters, the Office for Budget Responsibility (OBR).

Budget spending and tax policies increase borrowing by an average of £5bn over the next three years, but then reduces it by roughly £13bn in the following two.

More to come

This budget won't be the last of it, the Resolution Foundation's Ms Curtice said, as economic growth forecasts have been downgraded by the OBR, and growth is a "hurdle that remains to be cleared".

"Until that challenge is taken on, we can expect plenty more bracing budgets," she added.

It comes despite Ms Reeves saying as far back as last year, there would be no more tax increases.

Ultimately, though, the foundation said: "The great drumbeat of doom that preceded the chancellor's big day turned out to be over the top: the forecasts came in better than many had feared."

(c) Sky News 2025: 'Sticking to Labour manifesto pledge costs millions of workers', Resolution Foundation says