Households on track to be £400 worse off this tax year due to higher taxes, even higher bills, and benefits that aren’t keeping pace

As the new tax year begins in April, the outlook for living standards is historically bleak as British households face a triple-hit from higher taxes, utility bill increases, and benefits that aren’t keeping pace with the cost of living – leaving the typical working-age household £400 worse off this financial year, according to new analysis from the Resolution Foundation, published today (Thursday).

Happy new tax year 2025 reveals that while the Government has kept its election promise of not (directly) increasing taxes on working people, a range of pressures continue to depress incomes in other ways.

First, tax policy changes coming into effect this Saturday are increasing costs for many.

Long-running freezes to personal tax thresholds will push up effective tax rates across the pay distribution, while the increased rate of employer National Insurance Contributions (NICs), together with the reduced threshold at which they kick in, will feed through to households through slower wage growth as employers recoup costs. The Foundation’s analysis estimates that these two changes combined will reduce incomes by £170 a year for a typical household.

Secondly, rising utility bills and Council Tax – which is paid like a household bill – will put further pressure on family budgets. The typical household faces a (cash) Council Tax rise of £80 a year, with 5 per cent increases across most of England, a 7 per cent average rise in Wales and 9 per cent in Scotland. Successive above-inflation rises in Council Tax mean that it is now hitting record highs (relative to GDP) outside of the pandemic.

Above-inflation increases on water bills will be even more sharply felt, with an average rise of £120 a year (26 per cent, or as high as 47 per cent for Southern Water customers).

The annualised energy price cap for a typical household increased by £111 from 1 April, meaning that energy prices are now pushing up inflation for the first time since Q3 2023. Luckily, with only 16 per cent of gas consumption happening from April to June, and prices expected to fall back in July, the impact of this cap rise should be limited.

Finally, working-age benefits will not keep pace with inflation this year, with this month’s 1.7 per cent uprating falling far shy of an inflation forecast of 3.2 per cent. Low-income renters will also be squeezed by the freeze in Local Housing Allowance, particularly as private rents have risen by 9 per cent since these were last set.

The main chink of light in an otherwise gloomy outlook comes from another bumper 6.7 per cent rise in the National Living Wage, which will benefit around two million workers.

Bringing together all these changes and more, the disposable income of a typical working-age household is projected to fall by 1 per cent – or £400 – in real-terms this financial year, while households across the poorest half of the country are set for an even sharper 2 per cent fall (equivalent to £300). This will represent the first year of a five year period that will see incomes fall a total of 3 per cent – or £500 –for the bottom half of the income distribution.

While many of these financial pressures are beyond the Government’s control, quickfire measures can help to ease the pressure on family budgets.

For example, 2026’s welcome above-inflation increase of around 2 per cent in the standard allowance of Universal Credit – announced in the Spring Statement last week – could be brought forward by six months to October 2025. This one-off cost of around £400 million would benefit around six million households.

Adam Corlett, Principal Economist at the Resolution Foundation, said:

“The new tax year has arrived, and brings with it higher taxes, even larger bill increases, and benefits that aren’t keeping pace with the rising cost of living.

“The typical household is now projected to be £400 worse off this financial year, due to a combination of weakening earnings growth, rising housing costs, taxes and bills, and benefits struggling to outpace inflation.

“As vulnerable households try to meet these rising costs, the Government can help by bringing forward next year’s welcome Universal Credit boost to this October.”