At a Glance
The 2025 UK budget could end up reducing disposable income in real terms for many households by freezing income tax and National Insurance thresholds, increasing duties on alcohol, tobacco, vaping and sugary drinks, as well as limiting long-term tax efficiencies.
Whilst there’s been some benefit support increases, some households could face higher everyday costs and gradual tax pressure through fiscal drag.
Budget 2025 Leading to Less Disposable Income
When the 2025 UK budget landed, many paused to wonder what this might mean for their everyday budgets.
With changes to taxes, pensions, fuel duty and more, individuals and families across the country may be impacted differently, depending on their financial situation.
Whether you’re earning a salary, working on saving or planning for retirement, some of these new rules could affect your finances, which could, reduce the amount of disposable income available after essential expenses
In this blog, we’ll discuss the key budget 2025 policies and how they work, highlight the policies that might affect your budget and help you understand the potential implications of these changes.
Changes to Income Tax Thresholds and What They Mean for Take-Home Pay
The Autumn Budget 2025 extended the freeze on personal income tax thresholds, including the personal allowance (£12,570), the basic-to-higher rate threshold (£50,270) and the additional-rate threshold (£125,140) until April 2031.
By keeping these thresholds fixed, while wages and prices rise, more of your earnings could be pushed into higher tax bands over time, which could reduce your real take-home pay, even if tax rates don’t change.
For many households, this has a similar effect to an increase in tax liability over time, meaning a higher proportion of earnings may become subject to income tax in future years. This may tighten monthly budgets unless wages rise faster than inflation.
National Insurance Adjustments and Their Impact on Monthly Earnings
The thresholds for employee National Insurance (NICs), including the lower earnings threshold and upper earnings limit, are also being kept frozen until 2031, rather than increased with inflation.
That again means as wages rise, more earnings could fall into the NIC-paying band, which is a phenomenon known as “fiscal drag”. The Budget did not raise the standard employee NIC rate in 2025, so for most workers, take-home pay from NICs remains unchanged in the short term.
However, a major change impacts those who use the pension “salary sacrifice”. From April 2029, only the first £2,000 of pension contributions via salary sacrifice will stay NIC-free and any excess will be subject to both employee and employer NICs.
Overall, while most salaries won’t see an immediate cut in take-home pay from NICs, over time, stagnant thresholds and changes to pension-scheme rules may, over time, affect net pay for some individuals as earnings change and could affect levels of disposable income for some households.
Updates to Benefits, Allowances and Cost-of-Living Support
The 2025 budget abolishes the controversial two-child limit on Universal Credit (and related child tax credits) from April 2026, meaning families with more than two children will no longer lose extra support if they three or more children.
It also raises the weekly rate for Child Benefit, so from 2025-26, the eldest (or only) child gets £26.05 per week and additional children get £17.25.
Meanwhile, the government’s energy-support measures aim to reduce household bills, on average saving around £150 next year, which may ease the cost-of-living pressure for many families.
Price Changes Driven by VAT, Duties and Industry-Specific Taxes
The 2025 budget increases various indirect taxes and duties, meaning everyday prices for many goods and services may rise.
Alcohol duty will increase in line with inflation from 1 February 2026.
Tobacco duty goes up by the inflation rate plus 2%, effective from 26 November 2025.
A new duty on vaping liquids will also start from 1 October 2026, which could increase the cost of vaping products, depending on how suppliers respond.
Taxes on sugary soft drinks will rise from April 2026 under the updated Soft Drinks Industry Levy (SDIL), which could raise prices of sugary drinks.
If you drive an EV or a plug-in hybrid, from April 2028, current plans indicate that drivers may be required to pay a mileage-based tax of 3p or 1.5p, respectively, for every mile driven.
Depending on how suppliers respond, these moves may result in higher prices for affected goods. This may squeeze household budgets and possibly result in less disposable income, based on individual spending habits.
For Support With Your Finances in an Emergency, Think Salad
Hopefully you now have more information on how the Budget could affect your finances in 2026 and beyond.
However, if rising costs are affecting your own monthly budget, you may need some support getting your finances back on track.
As the new rules roll out, at Salad, our focus remains on supporting the people who keep the UK running, ensuring they have access to fair credit options when they need them most.
That’s why we initially use an Open Banking-based assessment instead of your credit score to evaluate your current financial circumstances.
Applying for one of our new loans doesn’t impact your credit score. We use Open Banking in our initial assessment. If successful, we report your loan to the CRAs (Credit Reference Agencies). Your credit score is not used in our initial lending decision and won’t hold you back from being eligible.
To learn more about how our personal loans work, click here and to read more blogs like this one, visit our blog page.
