Samuel Turner works for the IEA. He writes on economics and economic freedom.
Chancellor John Healey claimed that his Budget was for working people, but the detail tells a different story. Rather than helping workers by cutting taxes, the Chancellor has chosen to continue the freeze on both income tax and National Insurance thresholds, dragging half a million more workers into paying the higher rate.
Not only will this stealth tax leave workers with less disposable income, it will also weaken incentives to work and earn more. With workers keeping less of each additional pound they earn, they will be discouraged from working overtime or pursuing a promotion. Just this month, the Office for Budget Responsibility (OBR) estimated that, taken together, the threshold freezes in income tax and National Insurance from 2022–23 to 2030–31 could decrease labour supply by 215,000 in average-hours equivalent terms by 2030–31.
The long-term effect of this will be a smaller tax base, which will partially offset the revenue gains from freezing thresholds in the first place. And if people turn down extra responsibilities and promotions, businesses will find it harder to fill skilled positions, weakening productivity and wage growth across the economy.
As the old saying goes: “To think you can make a man richer by putting on a tax is like a man thinking he can stand in a bucket and lift himself up by the handle.” Similarly, by freezing the income tax thresholds, the Chancellor is stifling the growth and productivity upon which the state and the public sector depend.
At the same time as freezing tax thresholds, which imposes costs on working-age people, the Government has announced a new Pension Tax Allowance to shield low-income pensioners from income tax. This new “quadruple lock” adds complexity to the tax system and further narrows the tax base. At a time when welfare spending is already out of control, it makes little sense to give extra protection to pensioners while imposing extra costs on workers.
A typical 25-year-old, for example, might earn £28,000 a year. With tax thresholds frozen, he or she will be paying around £295 extra in annual tax by 2030–31, assuming inflation averages 2 per cent. That’s £25 a month: money that could otherwise go towards savings, transport, holidays or household bills.
With younger workers bearing the brunt of the Government’s stealth tax, it’s hard to see the Budget as anything other than an attack on the young.
As well as being made worse off by stealth taxes, young people will also be adversely affected by the Government’s decision to raise the minimum wage. This will make it more costly for businesses to take on younger and less experienced workers, worsening the current crisis of youth worklessness.
Earlier this year, the CIPD told the Low Pay Commission that nearly a quarter of employers reported reducing employee numbers or recruiting fewer workers following the April 2026 minimum-wage increase. Among employers most affected by the increase, the figure rose to 35 per cent. With 715,000 young people (15.6 per cent) already unemployed, the highest figure since 2011, the Government needs to recognise that its own policies are making the problem worse.
Some might say that, by refusing to accept the trade-off between higher wages and higher unemployment, the Chancellor is overlooking a well-established lesson in economics.
The Government should recognise a basic truth about the minimum wage: it does not guarantee anyone a job at that rate. If a worker’s skills are not yet worth the legal minimum to an employer, the job is simply never offered, and the wage that worker actually receives is zero.
By raising the minimum wage, the Government is not helping the lowest paid. It simply legislates for higher unemployment.
Healey did reference the roughly 1 million young people not in employment, education or training (NEET), but said that the Government would wait for the findings of the Milburn Report before taking action next year. The country deserves better than this. Rather than taking the necessary measures to increase employment through tax cuts, the Government has increased taxes by stealth to fund people on benefits.
The £100 giveaway to households living in council tax bands A to D is another example of the Government favouring state support over lower taxes. Instead of empowering households through tax cuts, which would allow people to keep more of their money, the Chancellor has chosen to increase their dependence on the state.
Young people don’t want handouts. They want a hand up. That means raising tax thresholds, cutting tax rates and scrapping employment regulations for businesses so that they can afford to hire more workers. Tax cuts on income are entirely affordable and can be paid for by cuts to welfare and tax simplification measures laid out in the IEA’s Alternative Budget.
Some will say that tax rises are necessary to fund public services and pensions for our ageing population. They are not. For Britain to become a truly rich and successful country, the Government should reward aspiration instead of taxing it, and get the economy growing.
I am with you on reducing employment taxes on the young, but part company on the issue of tax thresholds. Probably everyone should pay some income tax, even, young people and welfare recipients (OK, I know, taking with one hand....) to remind them where public expenditure ultimately comes from, and to give an incentive not to shake the money tree at every opportunity. As I mentioned a couple of weeks back, about one-third of adults pay no income tax, so for them why not welcome more state spending, that might end up on their doorstep. If you want a smaller state, tax structure has a role to play.
I have seen an on-line post, which stated the the national minimum wage has increased by something in the order of 65% from when it was first introduced. However the tax taken from this grouping has increased by circa 170 % over the same period. My first part time job as a 13 year old back in the 60's was was 3 shillings and sixpence per hour.