Household disposable income across the United Kingdom has slumped to its lowest level since before the Covid-19 pandemic, according to new official figures. The sharp decline is attributed to a significant increase in tax payments collected by HM Revenue & Customs (HMRC).
The Numbers Behind the Squeeze
The Office for National Statistics (ONS) reported that real household disposable income per person fell by 0.8% in the third quarter of 2025, covering the three months to September. This figure is adjusted for inflation, providing a clear picture of purchasing power.
The ONS pinpointed the primary cause: a massive £6 billion surge in taxes on income and wealth. This increase completely offset a £3.5 billion rise in wages and salaries during the same period, leaving households financially worse off.
Fiscal Drag's 'Corrosive Impact'
Economic analysts have highlighted the mechanism behind this squeeze. Martin Beck, an economist at WPI Strategy, explained that the prolonged freeze on income tax thresholds is having a "corrosive impact".
"As pay rises push more people into higher tax bands, fiscal drag is steadily eating into take-home pay," Beck stated. "This process is blunting the benefits of wage growth and weighing heavily on living standards for millions."
Budget Context and Pension Pledge
This data follows Chancellor Rachel Reeves' second Autumn Budget. In a contrasting move aimed at pensioners, the government has recently reaffirmed its commitment to the state pension triple lock.
Ministers state that this policy will leave state pensioners approximately £1,900 better off over the coming years. The Labour government has pledged to maintain the triple lock for the entirety of the current Parliament, which is expected to last until 2029.
Officials project that consistent increases under the lock will result in the pension rising by up to the quoted amount by that time.
