The new tax year has started, and for millions of British workers, it means the same thing it has meant every April under this Labour government: you will pay more, keep less, and be told the economy is fine. The personal allowance is still frozen at £12,570 — where it has sat since 2021/22 — and dividend tax rates have just gone up by another 2 percentage points. Welcome to Labour's stealth tax raid.
Fiscal Drag Is a Tax Rise in All but Name
When the government refuses to raise the personal allowance in line with wages or inflation, they are quietly increasing the effective tax burden on every earner. This is called fiscal drag, and it is the chancellor's favourite trick. The personal allowance has been frozen since 2021/22 and the freeze is set to continue until at least 2028. That is seven years of bracket creep, pushing more and more ordinary workers into paying income tax — and pushing more middle earners into the higher rate.
Labour did not campaign on this. They will not admit it at the dispatch box. But the numbers don't lie: the share of income paid in taxes is projected to continue rising precisely because of the frozen thresholds. This is a tax rise that no one voted for, imposed by stealth, felt every month in every pay packet.
Dividend Tax Up Again — Punishing Investment
Dividend tax rates rose by 2 percentage points across the basic and higher bands from 6 April 2026. This is a direct hit on the people who save, invest, run small businesses, and build wealth for their families. It also hits pensioners who rely on dividend income to supplement their pensions.
The message Labour is sending to savers and entrepreneurs could not be clearer: the more you invest, the more we will take. Is it any wonder that business confidence is flat and capital is flowing out of the UK?
Making Tax Digital — Another Burden on Small Business
From 6 April 2026, Making Tax Digital for Income Tax begins for sole traders and landlords earning over £50,000. That means quarterly digital submissions, new software requirements, new compliance costs, and less time actually running the business. For a plumber, a small landlord, a self-employed tradesman — this is a quiet but real hit to productivity and profit.
The Treasury will tell you it modernises the tax system. What it actually does is redistribute time and money from small businesses to accountants and software vendors.
The Rent Shortfall Crisis
Meanwhile, private rents have risen 20 per cent on average since Local Housing Allowance was last linked to market rents. A family in an average two-bedroom property in Gloucester now faces a monthly shortfall of £160 between their rent and housing support. That isn't abstract. That is the difference between heating the home and feeding the children — every single month.
Labour's response has been to raise the minimum wage and tell the public the government is "boosting pay." The minimum wage increase of 50p per hour is welcome. It is also almost entirely swallowed by frozen thresholds, higher council tax, and rising rent.
What Reform UK Would Do
Reform UK would raise the personal allowance significantly and index it to inflation so fiscal drag cannot be used as a stealth tax again. We would cut tax on savings and dividends to reward investment rather than punish it. We would scrap the more burdensome parts of Making Tax Digital for small operators who cannot absorb the compliance costs.
The British worker deserves a government that understands a simple truth: leaving more money in people's pockets is not a cost to the Treasury — it is the point of having a Treasury in the first place.