As the new tax year begins this weekend, the outlook for living standards in the UK is alarmingly bleak. Households are projected to be £400 worse off this financial year due to a combination of higher taxes, surging utility bills, and benefits that are failing to keep pace with the rising cost of living. This grim forecast comes from the Resolution Foundation, a prominent think tank that has closely analyzed the economic pressures facing families across the nation.
Beginning Sunday, April 6, 2025, the financial landscape is set to change dramatically for many. Although the government has kept its election promise not to directly increase taxes on working people, various tax policy changes will nonetheless increase costs for households. A long-standing freeze on personal tax thresholds will effectively raise the tax burden across the pay distribution, while an increase in employer National Insurance Contributions (NICs) will further impact household budgets. According to the Resolution Foundation, these changes are expected to reduce incomes by £170 annually for a typical household.
In addition to the tax hikes, families will also face rising utility bills and higher council tax. The typical household is expected to see a council tax rise of £80 a year, with increases of 5% across most of England, 7% in Wales, and 9% in Scotland. This marks a continuation of above-inflation increases that have pushed council tax to record highs relative to GDP. Water bills are also set to climb, with an average increase of £120 a year, and for some customers, particularly those in the Southern Water region, this rise could be as high as 47%.
Moreover, the annualized energy price cap for a typical household increased by £111 from April 1, 2025, which is likely to put upward pressure on inflation for the first time since the third quarter of 2023. However, experts suggest that the impact of this cap rise may be limited, as only 16% of gas consumption typically occurs from April to June, and prices are expected to fall back in July.
As if these financial pressures weren’t enough, working-age benefits will not keep pace with inflation this year. The 1.7% uprating announced for April falls far short of the inflation forecast of 3.2%. Low-income renters will also feel the squeeze from a freeze in Local Housing Allowance, especially as private rents have risen by 9% since these allowances were last set.
Despite the dire situation, there is a small glimmer of hope. A significant 6.7% increase in the National Living Wage, which will benefit around two million workers, is one positive development. However, when considering all these changes, the disposable income of a typical working-age household is projected to fall by 1%—or £400—in real terms this financial year. Households in the poorest half of the country are expected to experience an even sharper decline, with their incomes projected to fall by 2%, equivalent to £300.
This year marks the beginning of a five-year period during which incomes for the bottom half of the income distribution are expected to decline by a total of 3%, or £500. Adam Corlett, Principal Economist at the Resolution Foundation, emphasized the severity of the situation: “The new tax year brings with it higher taxes, even larger bill increases, and benefits that aren’t keeping pace with the rising cost of living.”
Corlett continued, “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.”
Looking ahead, there are calls for immediate government action to alleviate some of the financial burdens on families. For instance, the above-inflation increase of around 2% in the standard allowance of Universal Credit, which is set for 2026, could potentially be brought forward to October 2025. This one-off cost of around £400 million would benefit approximately six million households.
As the new tax year unfolds, the challenges facing British families are undeniable. With living standards under siege from multiple angles, the government’s ability to respond effectively will be crucial in determining the economic well-being of millions. The coming months will be pivotal as households navigate these financial pressures while hoping for relief.
