As the UK government prepares for the Autumn Budget, questions swirl around the future of taxation and public spending, with Transport Secretary Heidi Alexander and Treasury Minister Darren Jones offering few concrete answers on potential tax changes. The government has pledged not to raise taxes on "people on modest incomes," yet the definition of modest income remains elusive, sparking debate and concern among working professionals nationwide.
On July 14, 2025, Transport Secretary Heidi Alexander addressed the possibility of introducing a wealth tax in the upcoming budget. While she did not outright dismiss the idea, Alexander emphasized the government's commitment to shielding those on modest incomes from increased taxation. This statement, however, left many wondering who exactly qualifies as "people on modest incomes," a question Treasury Minister Darren Jones dodged when interviewed the following day.
Speaking to Times Radio on July 15, Jones refused to define what constitutes a modest income, instead reiterating the Labour party's manifesto promise to protect working people by not increasing the headline rates of income tax, VAT, or National Insurance. "I’m not going to define what a modest income is. But what I will tell you is what our manifesto said, which is that we’re going to protect working people by not increasing the headline rates of income tax, VAT or national insurance," Jones said. His comments left the door open to other fiscal measures, such as freezing tax thresholds, which could indirectly raise tax burdens through "fiscal drag."
Adding to the complexity, Jones also hinted at the possibility of scrapping the two-child benefit cap, a policy that limits child benefit payments to two children per family. The Institute for Fiscal Studies (IFS) estimates that removing this cap would cost approximately £3.6 billion annually, a significant expenditure amid ongoing concerns over public finances.
These developments come against a backdrop of ongoing fiscal challenges. London's median full-time salary stands at £41,866, a figure that places many senior health workers, police officers, teachers, and private sector employees at risk of higher tax rates due to the freeze on income tax thresholds. This freeze, which prevents the thresholds from rising in line with inflation, results in "fiscal drag," pushing more individuals into higher tax brackets despite stagnant or modest wage growth.
The income tax threshold freeze, initially extended by former Chancellor Jeremy Hunt for two years until 2028, remains a contentious issue. In October 2024, Labour's Shadow Chancellor Rachel Reeves announced plans to lift the freeze starting from the 2028-29 fiscal year, warning that extending it would harm working people. However, her deputy, Chief Secretary to the Treasury Darren Jones, declined to reaffirm this commitment, stating, "That is Government policy today," when questioned on LBC Radio.
The Office for Budget Responsibility (OBR) has projected that extending the threshold freeze could raise over £38 billion annually by 2029/30. The OBR has also warned that the UK's state finances are on an "unsustainable" path due to a series of public spending promises that the government cannot afford in the long term. Despite these warnings, Jones dismissed reports of a £20 billion black hole in public finances, signaling a reluctance within the government to acknowledge the full scale of fiscal challenges ahead.
Economic growth remains the government's top priority. In an interview with The Times, Bank of England Governor Andrew Bailey expressed optimism that the current interest rate of 4.25%, which was held steady in June 2025, would be lowered in the future. Lower interest rates could ease borrowing costs and stimulate economic activity, but the timing and extent of such cuts remain uncertain.
The Labour party's approach to taxation and public spending reflects a delicate balancing act. On one hand, there is a clear intent to protect working people from headline tax increases. On the other, measures such as freezing tax thresholds and potentially scrapping the two-child benefit cap suggest that some taxpayers may face higher burdens or changes in benefits to manage the fiscal deficit.
Critics argue that the government's broad definition of "working people" stretches the concept to cover a wide range of income levels, potentially masking significant tax rises for many. The refusal to define "modest income" fuels uncertainty and leaves workers uncertain about their financial futures. Moreover, the prospect of scrapping the two-child benefit cap raises questions about the government's priorities in supporting families and addressing child poverty.
As the Autumn Budget approaches, these unresolved issues highlight the challenges facing policymakers. Balancing the need for fiscal responsibility with promises to protect working families is no easy task. The government's cautious language and reluctance to provide clear definitions or commitments suggest that difficult decisions lie ahead.
For many UK workers, especially those earning around the median salary in London, the next budget could bring unwelcome surprises. The combination of frozen tax thresholds and potential changes to benefits may effectively increase their tax burden, even without headline rate hikes. Meanwhile, the government's stance on public spending and debt sustainability remains under close scrutiny from economic watchdogs and the public alike.
In this climate of uncertainty, the government's promise to prioritize economic growth offers some hope. If interest rates do fall as anticipated, and if growth accelerates, there may be more room for maneuver in future budgets. However, for now, many are left waiting to see how the government will reconcile its commitments with the stark realities of the UK’s fiscal situation.
Ultimately, the unfolding budget discussions underscore the complexity of modern fiscal policy, where headline promises often mask deeper shifts in tax burdens and social support. The coming months will reveal how these tensions play out and what they mean for the millions of working people across the country.
