The financial strain on households is intensifying as more workers are caught in the tax net, driven by the ongoing effects of fiscal drag.
Recent borrowing statistics indicate that the Chancellor’s financial leeway is diminishing. With a Labour leadership transition on the horizon, analysts suggest that elevated tax rates are likely to persist.
Data reveals that HMRC collected £87.3 billion in taxes this April, marking an increase of £6.3 billion compared to the same month last year.
Of the total, workers contributed £52.5 billion in income tax and National Insurance. As thresholds remain unchanged, many workers are being pushed into higher tax brackets, even when their salary increases only match inflation.
With these thresholds frozen until at least 2031, the tax burden is expected to rise further. “These figures are set to climb even further, because tax attacks are far from over,” remarked Sarah Coles from AJ Bell.
Spending splurge: Borrowing costs surged in April as spending outstripped revenues
This situation unfolds as public borrowing figures reveal that Rachel Reeves’ tax strategies have not been sufficient to counterbalance her increased spending.
The public sector racked up £24.3billion of borrowing last month, and spending far outstripped revenues as the Middle East conflict drove the cost of servicing the UK’s debt to £10.3billion.
It lays bare the pressure heaped on businesses and households following the Chancellor’s tax raids, which is only set to accelerate if a new left-wing leader adopts new policies.
CGT and IHT changes backfire
Capital gains taxes came into sharp focus this week as Labour leadership hopeful Wes Streeting announced plans to align CGT rates with income tax bands.
This would see CGT rates at 20 per cent for basic-rate taxpayers, 40 per cent for higher-rate and 45 per cent for additional-rate taxpayers.
It follows Rachel Reeves’ increase to rates in the 2024 Budget, from 10 to 18 per cent for basic rate taxpayers. Higher-rate taxpayers now pay 24 per cent, up from 20 per cent previously.
HMRC figures show CGT receipts in April were £165million, which were £29million lower than last April. However, the tax take remains elevated after the reduction in the annual allowance and increase in CGT rates.
Streeting’s plans could see those figures increase further or backfire and encourage investors to bring disposals forward or become more cautious in crystallising gains altogether.
Rachael Griffin, tax and financial planning expert at Quilter, said: ‘Capital Gains Tax is particularly sensitive to behavioural change. If the prevailing mood music from Labour leadership hopefuls signals a more punitive approach, new mitigation strategies are likely to emerge in response.’
Ian Dyall, head of estate planning at Evelyn Partners added: ‘It’s perhaps unsurprising if some families are starting to fear that higher wealth taxes are very much on the table, even after taxes went up in the first two Budgets of this government.’
The inheritance tax take unexpectedly fell £65million to £700million after consecutive monthly rises. More families have been dragged into paying the death tax in recent years.
It is also the final April in which pension wealth remains outside the scope of IHT. From April 2027, unused pension pots will be brought within the taxable estate.
‘That shift is likely to have a profound effect on future receipts,’ said Griffin.
‘Pensions have long been one of the largest assets held outside the estate, and bringing them into scope significantly increases the number of people paying what was once a tax for the very wealthy.’
Stamp duty receipts also fall
April’s data shows Stamp Duty receipts also fell despite more buyers being more eligible for the tax following changes to the nil-rate thresholds introduced in April 2025.
HMRC figures show receipts were £1.8billion, which is £5million lower than the same period last year, which suggests homeowners are staying put as higher costs bite.
Jonathan Stinton, head of mortgage Relations at Coventry Building Society, said: ‘When Stamp Duty goes up, activity can slow down – because you can’t turn up the tax without taking some steam out of the market.
‘For many buyers, finding thousands of pounds for upfront costs on top of deposits, legal fees, and moving costs can be enough to rethink a move.’
He added: ‘Bringing more homes into the tax net might seem like an easy win for the Treasury – but if higher upfront costs discourage people from moving the overall take can actually start to fall.
‘There’s a risk of creating a lose-lose situation where homebuyers are paying more, but the expected boost to tax receipts doesn’t fully materialise.’
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