Middle-income workers across the UK are poised to bear the brunt of a significant financial squeeze following policy changes announced in the Labour Party's Autumn Budget, according to a stark new analysis.
The 'Triple Whammy' Explained
Pensions consultancy LCP has identified a combination of three specific measures that will disproportionately impact those with salaries generally up to £52,000. This creates a unique 'triple whammy' effect, placing a heavier relative burden on this group than on some individuals earning six-figure sums.
The analysis indicates that due to this combined policy effect, a worker earning between £40,000 and £52,000 could face a steeper effective tax rate than someone on a salary of £100,000.
Key Budget Changes Creating the Squeeze
The financial pressure stems from three distinct decisions outlined by the Chancellor.
Firstly, a major shift involves the scaling back of benefits from salary sacrifice schemes. A new cap will be introduced on the National Insurance (NI) advantages these schemes provide, effective from 6 April 2026.
Under the new rule, only a limited portion of pension contributions made via salary sacrifice will be exempt from National Insurance. Once an employee's contributions exceed a set annual cap, they will be required to pay NI on any additional amount sacrificed.
Secondly, the government's decision to maintain frozen income tax thresholds continues. This policy, widely known as 'fiscal drag', means that as wages increase through inflation or promotion, more people are pulled into higher tax brackets without any explicit change in the law.
For many in the middle-earning bracket, this freeze could soon push them into becoming higher-rate taxpayers for the first time, significantly reducing their disposable income.
The third element is the continued freeze of the threshold at which graduates start repaying their student loans. With wages rising but the repayment threshold static, a larger portion of income is deducted for loan repayments sooner.
Expert Insight and Broader Impact
Rachel Vahey, head of public policy at investment firm AJ Bell, offered some context for pension savers. "Despite the national insurance savings being capped, pension contributions will still be exempt from income tax, and workers can still enjoy pension tax relief up to their marginal rate of income tax," she noted.
Vahey also advised caution, adding there is "no need to rush and make changes" to existing pension arrangements based on this news alone, suggesting individuals seek personalised advice.
This triple squeeze from the Autumn Budget marks an unprecedented shift, creating a notable disparity where middle-income professionals face a growing tax burden. The changes highlight the complex interplay of tax and benefits policy, with fiscal drag becoming an increasingly powerful force on household finances.
