Financial expert Martin Lewis has stepped in to demystify three significant benefit rule changes announced in Chancellor Rachel Reeves' Autumn Budget, providing much-needed clarity for UK households concerned about their finances.
Understanding Fiscal Drag: The Silent Tax Rise
Speaking on his ITV programme, The Martin Lewis Money Show Live, the MoneySavingExpert.com founder explained that the extension of Income Tax and Personal Allowance freezes represents the biggest tax-raising measure affecting everyone. The thresholds, originally frozen until 2028, will now remain fixed until 2031.
Martin Lewis clarified: "You don't pay anything on the first £12,570 of your income, you pay 20% on everything you earn above that. The 40% higher rate starts at £50,270, then you've got this strange situation where you start to lose your tax-free Personal Allowance once you earn £100,000, creating an effective 60% tax rate."
The Real Impact on British Taxpayers
The finance guru highlighted the substantial consequences of these frozen thresholds, explaining that as wages increase but tax bands remain static, people inevitably pay a larger proportion of their income in tax.
Between when the freezes began and their predicted end in 2031, Lewis revealed that 5.2 million people who were non-taxpayers will start paying tax, while 4.8 million basic rate taxpayers will move into the higher rate tax bracket.
Why Fiscal Drag Costs More Than Direct Tax Increases
Martin Lewis delivered a striking comparison that put the policy's financial impact into perspective. He stated: "Frankly, this extension would probably have been cheaper for us if these thresholds had been moved up, and the government had put a penny on income tax instead."
This explanation cuts through the complexity of the Autumn Budget announcements, helping ordinary households understand how Chancellor Rachel Reeves' decisions will directly affect their financial situation over the coming years.
