Britain’s quiet tax revolution
What has already changed, and what’s yet to come
The new Labour government, and the Treasury mandarins behind it, are managing Britain’s fiscal future less through loud ideological declarations than through a quiet tax revolution.
It is not a single wealth tax, nor a return to the 1970s “soak the rich” politics, but rather a battery of adjustments across the system (threshold freezes, duties, targeted levies) that are steadily reshaping who pays what.
For lower- and middle-income households, the cumulative effect is already being felt in shrinking disposable incomes, even as ministers insist they have held the line on the “big three” taxes: income tax, VAT, and employees’ national insurance.
Taken individually, each measure can be defended as marginal, targeted, or falling mainly on the wealthy. Taken together, they amount to the most significant broad-based tax rise in a generation.
I want to look at the measures already implemented since the October 2024 Budget and early 2025, with particular attention to how they fall on working households, and the proposals and expected measures for the Autumn Statement of 2025, which suggest a further ratcheting up of fiscal pressure.
As with all of these reforms to the tax system, lower-middle earners will be bearing much of the indirect load.
Tax Rises Already in Force
Employers’ National Insurance Contributions (NICs)
The October 2024 Budget increased employers’ NICs to 15%, while lowering the threshold at which they begin to pay from £9,100 to £5,000.
On paper this is a levy on businesses, not households. But in practice, labour taxes rarely stop at the firm’s door; employers pass costs on either by suppressing wages, cutting hours, or slowing hiring. For lower-middle income workers, especially those in retail, hospitality, and lower-skilled manufacturing, the effect is a squeeze on earnings potential just as living costs remain high.
Capital Gains Tax (CGT)
The same budget raised CGT from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers. Few lower-income households hold large portfolios, but this is not just a “rich man’s tax.” A growing number of ordinary families own second properties as buy-to-lets or have modest investments through ISAs and share schemes.
Higher CGT reduces returns, limiting the ability of lower-middle families to build capital outside their wages. It deepens the divide between households reliant solely on income and those with intergenerational wealth cushioned by assets. Ironically, the budget may well end up growing the class divisions that Labour supposedly wish to shrink.
Inheritance Tax (IHT) adjustments
Inheritance tax thresholds remain frozen, and from 2027 pensions will be counted towards taxable estates. For households of modest means in the South East or other areas with high house prices, this pushes more estates into the IHT net.
The once-assumed aspiration - that careful saving and a family home could be passed down untaxed - is being eroded. For lower-middle earners, the psychological impact matters as much as the fiscal one: the sense that the ladder of aspiration is being pulled up.
Stamp Duty on second homes
Raising the additional rate from 3% to 5% was justified as discouraging speculative landlords. But in practice, many lower-middle families rely on small buy-to-lets as retirement vehicles, particularly those outside generous public sector pension schemes.
A higher entry cost locks them out, further entrenching the divide between those with existing portfolios and those who came later to the market.
VAT on private school fees
Extending VAT to private school fees from January 2025 was billed as a progressive measure. Yet its burden is not confined to the ultra-wealthy. Many lower-middle families, particularly professionals, stretch their finances with extra work or second mortgages to fund relatively modest independent schools. For them, a 20% uplift is punitive.
The impact will be more acute outside London’s elite schools, where smaller institutions risk closure, reducing choice and pushing pupils into already strained state provision. The government’s own projection was that a further 35,000 pupils would join mainstream education as a result, while many private schools have closed as a direct result of the levying of VAT.
Excise duties: vaping, tobacco, and air passenger duty
Excise duties tend to be regressive by design. Higher taxes on vaping and tobacco hit consumption patterns that are disproportionately weighted towards lower-income households.
Meanwhile, increased Air Passenger Duty is felt by the very demographic that drives budget tourism and short-haul family travel. These measures are politically safe - the government can claim health or environmental justifications - but socially they weigh heaviest on those with the least elasticity in their spending.
Vehicle Excise Duty (VED) reforms
From April 2025, zero-emission vehicles lost their exemption. Electric cars now attract standard VED, and the expensive car supplement was extended to them.
For lower-middle earners, this changes the calculus of “going green.” Families that stretched to buy a second-hand EV now face annual costs that erode the expected savings.
This is a classic case of policy whiplash: households who did what the state urged them to do are suddenly penalised. This happens far too often for comfort, but the real losers are the households who bought into the ecowave on the understanding it would save them money. Such is the fate of government-subsidised industries.
Abolition of the non-dom regime
The abolition of non-dom status in 2025 is widely popular, symbolising fairness in taxation. But the real fiscal yield is limited, while the political effect is to justify heavier burdens elsewhere. For lower-middle households, the material benefit is nil.
Indeed, if wealthy foreigners relocate elsewhere, local economies may lose investment and jobs. It’s already happening here: thousands of millionaires have fled the country, while it’s common for working professionals in their mid-20s to mid-30s to discuss moving to less punishing tax regimes, such as Dubai.
This is a reminder that symbolic victories often do little for those at the squeezed middle.
Frozen income tax thresholds
Perhaps the most consequential of all is the freeze in income tax thresholds until 2028. In a period of persistent wage inflation, more workers are being dragged into higher bands - a phenomenon known as “fiscal drag.”
For lower-middle income households, this is not an abstract macroeconomic effect. It means overtime, promotions, and modest pay rises translate into less take-home pay, fuelling the sense of running to stand still.
Impacts on lower-middle households so far
Taken individually, each measure can be defended as marginal, targeted, or falling mainly on the wealthy. Taken together, they amount to the most significant broad-based tax rise in a generation.
For the lower-middle households - teachers, nurses, small business owners, skilled trades - the story is consistent: higher costs, slower wage growth, and shrinking space for savings or aspiration.
Disposable income is being eroded: from stealth wage cuts due to employer NICs, to frozen thresholds pulling more income into the state’s net.
Asset-building is harder: whether through modest investment (CGT), buy-to-let (stamp duty), or inheritance planning (IHT), the opportunities for lower-middle families to accumulate and pass on wealth are closing.
Consumption is more expensive: VAT on school fees, VED on EVs, duties on tobacco and travel; these all chip away at household budgets.
The cumulative effect is to undermine the very demographic that the government insists it wishes to protect: “hard-working families.” They are neither rich enough to shield themselves through accountants nor poor enough to qualify for generous benefits. Instead, they are the fiscal workhorses of the modern state.
Taxes likely to come in Autumn 2025
While ministers rule out raising the “big three,” the Autumn Statement is expected to introduce a second wave of measures.
These follow the same pattern: indirect, targeted at assets, but with inevitable spillover into the lives of the lower-middle.
For lower-middle households in those regions, long-term home ownership risks becoming a liability, not an asset.
High-value home taxes
The most discussed proposal is the removal of the CGT exemption on primary residences worth over £1.5 million, or the replacement of council tax and stamp duty with an annual property tax on expensive homes. The headline targets the wealthy, but the threshold catches many ordinary family homes in London and the South East.
For lower-middle households in those regions, long-term home ownership risks becoming a liability, not an asset.
Inheritance tax reforms
The government is weighing a lifetime cap on tax-free gifts (perhaps £50,000 to £200,000) after which further transfers attract the 40% IHT rate. Already grandparents are punished when they leave anything to their descendants, with their children often footing the bill.
This would curb the long-standing practice of parents helping children with house deposits. Lower-middle families who rely on such gifts to climb onto the property ladder would be hit hardest, while wealthier families with complex trusts would likely find workarounds.
Wealth tax discussions
Though not confirmed, a 2% annual levy on assets above £10 million has been floated. Supposedly this could raise between £20bn and £50bn, but that presumes the tax base will still exist in a six month’s time.
On the surface, this is beyond the concern of ordinary households. But precedent matters: once a wealth tax exists, thresholds can fall. Moreover, the deterrent effect on investment could weaken jobs and growth prospects, again indirectly squeezing the middle.
Extended threshold freezes
More likely than new headline taxes is the extension of frozen income tax thresholds. This is the classic stealth tax: politically painless but cumulatively powerful. For lower-middle earners, it means continued bracket creep, eroding any gains from wage rises.
Other reforms
Revisions to stamp duty, VAT thresholds for small businesses, and carbon/road pricing are all under discussion. Each has the potential to load additional costs on consumers and small enterprises, where lower-middle earners are concentrated.
These households are not yet impoverished, but they are increasingly immobile: taxed when they earn, taxed when they save, taxed when they spend, and taxed when they try to pass something on.
Projected impacts
If the coming measures are implemented, the impacts will mirror those already felt:
Housing as a fiscal target: whether through CGT on high-value homes or tighter inheritance rules, property (the main store of middle-class wealth) is being drawn into the tax net.
Continued fiscal drag: extending threshold freezes ensures the middle is the main revenue source, even without explicit income tax rises.
Reduced upward mobility: lifetime gift caps and wealth-based levies make it harder for the children of the lower-middle to move into secure home ownership.
The irony is sharp. The government insists it is protecting ordinary workers by sparing them direct tax hikes.
Yet through stealthier means, those very households are being squeezed hardest.
Britain’s tax landscape is undergoing a structural shift.
Since October 2024, a wide range of measures - from NICs and CGT to VAT, duties, and frozen thresholds - have already tightened the fiscal vice around lower-middle households. The coming Autumn Statement promises more of the same, focused on property, inheritance, and continued fiscal drag.
The political rhetoric is about fairness and targeting the wealthy. The economic reality is that Britain’s lower-middle class - the group that lives on wages, aspires to save, and funds modest homes or education - has become the quiet casualty of fiscal consolidation.
These households are not yet impoverished, but they are increasingly immobile: taxed when they earn, taxed when they save, taxed when they spend, and taxed when they try to pass something on.
The question for the future is not whether the government can raise revenue this way. Obviously, it can in a crude sense, but the real question is whether it can do so without eroding the social contract that has historically sustained the British middle class. Nic, 30 ans is about to leave, for good.