Households face ‘triple hit’ from tax, utility bills, and stagnant benefits
Millions of working-age households across the UK are expected to be £400 worse off on average in the coming financial year as incomes fail to keep pace with rising costs, a leading think tank has warned.
According to the Resolution Foundation, which focuses on improving living standards for those on low-to-middle incomes, families face a “triple hit” from increasing taxes, surging utility bills, and benefits that are failing to rise in line with inflation.
As the new tax year begins in April, many will feel the effects of long-standing freezes to personal tax thresholds, higher national insurance (NI) costs, and mounting household bills. The report suggests these financial pressures will contribute to a significant squeeze on disposable incomes, making it harder for families to manage day-to-day expenses.
Rising taxes and slower wage growth
One of the key concerns highlighted in the report is the impact of frozen personal tax thresholds. As wages gradually rise, more people are being dragged into higher tax brackets, leading to increased tax payments despite no real improvement in spending power.
At the same time, employer national insurance contributions have risen, which the Resolution Foundation warns will likely result in slower wage growth as businesses attempt to absorb the extra costs. This means that many employees will not see meaningful pay rises that could offset the impact of rising bills and taxes.
Utility and council tax increases add to financial pressure
On top of higher taxation, working households will have to contend with rising utility and council tax bills, further straining already stretched budgets.
With energy prices remaining stubbornly high, families across the country will see little relief in their gas and electricity bills, particularly as government support schemes introduced during the cost-of-living crisis have largely come to an end.
Council tax is also set to increase in many local authority areas, placing further financial strain on homeowners and renters alike. The Resolution Foundation’s report warns that these rising costs will disproportionately affect low-income households, who spend a larger share of their earnings on essentials like energy and rent.
Benefits failing to keep pace with inflation
Another significant concern is the stagnation of working-age benefits, which the think tank predicts will fail to keep up with the rising cost of living.
For low-income renters, the situation is expected to be even more difficult as the local housing allowance (LHA) remains frozen, making it harder for tenants to afford rent in an increasingly expensive rental market.
A small glimmer of hope: National minimum wage increases
Despite the bleak financial outlook, the Resolution Foundation identified a small silver lining in the form of national minimum wage increases.
From April, the national living wage for workers aged 21 and over will increase from £11.44 per hour to £12.21 per hour, while those aged 18 to 20 will see their hourly rate rise from £8.60 to £10.
While these increases are welcome, the report notes that for many, the higher cost of taxes, rent, and utility bills will outweigh the benefit of higher wages, leaving them worse off overall.
Disposable income expected to fall by £400 on average
Bringing all these changes together, the Resolution Foundation predicts that the disposable income of the average working-age household in the UK will decline by £400 in real terms over the course of the 2025/26 financial year compared to 2024/25.
The organisation has urged the Government to take action to help struggling households, particularly by bringing forward planned increases in the standard allowance of Universal Credit to offer some relief sooner rather than later.
Experts call for government action
Adam Corlett, principal economist at the Resolution Foundation, warned that the financial strain on households is likely to increase throughout the year, unless urgent action is taken.
**“The new tax year has arrived, bringing 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, tax increases, and higher bills.
“As vulnerable households struggle to meet these rising costs, the Government can help by bringing forward next year’s planned Universal Credit boost to this October.”**
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Government defends its economic policies
In response to the report, a Government spokesperson defended the economic measures in place, highlighting that living standards, when measured by real household disposable income (RHDI) per capita, are growing at their fastest rate in two years.
The spokesperson also emphasised steps taken to ease financial pressure on working families, stating:
“We’re putting more money into people’s pockets by boosting the minimum wage by up to £1,400 a year, freezing fuel duty, and protecting working people with no rise in their national insurance, income tax, or VAT.”
However, critics argue that while these measures are welcome, they fail to address the wider financial pressures caused by stagnant benefits, tax freezes, and rising household costs.
What happens next?
As the financial year progresses, households will have to navigate rising costs carefully, with many expected to cut back on discretionary spending and seek additional support where available.
With increasing calls for the Government to introduce targeted measures—such as immediate Universal Credit increases and greater energy bill relief—it remains to be seen whether further interventions will be made to ease the pressure on struggling families.
For now, millions of working-age households are bracing for another challenging year of financial hardship.
