Disposable Income to be Squeezed by Income Tax Threshold Freeze

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The main elements of last year's budget will come into force from April, and it is businesses that will bear the brunt of the tax rises.

Chancellor Rachel Reeves spared employees additional taxes, but, in her new budget she opted to keep the income tax thresholds unchanged.

This avoids the headlines, but it still has significant implications for UK workers due to a phenomenon often referred to as fiscal drag or bracket creep.

Over time, inflation typically causes wages and salaries to increase (even if purchasing power remains the same).

If tax thresholds (the income levels at which different tax rates apply) are not adjusted upward to account for inflation, more of a taxpayer's income can move into higher tax brackets, leading to higher effective tax rates. This is true even if the person’s real income (adjusted for inflation) hasn’t increased.

Suppose the tax threshold for a higher rate is $50,000. If your income increases from £49,000 to £55,000 due to inflation, part of your income (£5,000) now falls into a higher tax bracket. You pay a higher rate on that £5,000, even though your real purchasing power might not have improved.

By not adjusting thresholds, governments collect more tax revenue over time without explicitly increasing tax rates. This can be a way to increase revenues without directly introducing new taxes or raising rates, which might be politically unpopular.

As people are pushed into higher brackets, their take-home pay after taxes shrinks relative to their gross pay. This reduces disposable income, potentially impacting spending and savings.

If the tax-free threshold (the amount of income not subject to tax) remains unchanged, people with modest income increases might start paying taxes when they previously didn’t. This can disproportionately affect low-income earners.

Employers will have to contribute more to National Insurance payments as the government decided it would be businesses who pay for increased spending.

This means businesses might have no choice but to employ less staff or cut working hours in order to compensate for their loss in funds due to paying more tax.

The reason for these changes in National Insurance contributions is that the Government plans to boost public spending with the aim to improve key services - particularly in the areas of health, education, and infrastructure.

A Rise in Minimum Wage

In April 2025, the National Living Wage for employees aged 21 and over will go up by 6.7% and will rise from £11.44 an hour to £12.21 per hour. For those aged between 18–20, the minimum wage will see a 16% increase and will go up from £8.60 an hour to £10 per hour, and 16–17-year-olds will have a rise from £6.40 an hour to £7.55 per hour.

On top of the extra cost of paying staff higher salaries, many employers will have to make a bigger contribution to their employees’ National Insurance. This could result in a number of issues, like fewer jobs and pay rises available or a rise in the prices of goods and services to balance this out.

Benefits and Allowances

The Budget will also include a slight increase in various types of allowances and benefits for those getting additional support from the Government, at an increase of 1.7%.

This will include a rise in Universal Credit to help ease some of the financial strain for lower-income households and provide them with a little extra disposable income. Universal Credit will increase by £5.30 a month for a single person under 25 (which is around £317 per month) and by £10.50 per month for a couple over 25 (which will total £628 a month).

Impact on Disposable Income

One of the biggest concerns for most households in the UK is how the new Budget might affect their disposable income—the money left available to spend on non-essentials after taxes and general living expenses, like entertainment, holidays, and many other personal items intended for fun and leisure to treat yourself and others.

With the cost of living rising for us all, this will certainly have an impact on personal spending, as people are struggling to even keep up with necessities like energy, food, and transport costs.

The Government is now trying to even this out by introducing energy price caps and offering financial support to more vulnerable individuals.

However, despite this, households are still feeling overwhelmed, and it may take a while for these benefits to be felt, especially as a lot of homeowners and renters are still feeling the pressure with higher mortgage rates or rent prices—which makes holding on to their disposable income that much harder.

What Do Small Businesses Think?

The new Budget will affect various sectors - including online entertainment and iGaming.

So, while the budget for 2025 doesn’t directly address an industry like online gaming it’s important to note that gambling duty tax won’t change which is great news for online casino operators as they can continue to run their businesses without spending more on additional tax.

We approached JohnSlots - a portal for online UK casino and slot reviews and expert advice - for their opinion on how this would affect the iGaming industry.

A spokesperson from the platform stated:

"The iGaming industry - particularly sportsbetting - tends to weather periods of economic uncertainty relatively well. The main factor to account for is less 'will people still spend money on gambling entertainment?' and more 'how much less will they spend?'."

This stability in taxation can influence spending patterns and can affect how much disposable income
households can allocate for online entertainment.

Changes in Tax on Shopping and Services

Although there hasn’t been a huge rise in VAT, the Government did announce a series of changes on specific tax duties on luxury goods. This may have an impact on higher earners because of the increase in the costs for these non-essentials. Another example of non-essential items that will increase in price are cigarettes and other tobacco products.

But there’s good news for business rates
as shops, restaurants, and leisure facilities will see a drop in taxes in 2026, which may mean that customers will be able to spend less—thus, adding to their disposable income.

Tips for Managing Finances Post-Budget

With these new changes in mind, here are a few tips on managing your earnings and disposable
income.

Review Your Budget Regularly

It’s important to keep track of any changes to your personal income. Create or update your budget to reflect the new financial situation—there are many smartphone apps available that can help with this.

Take Advantage of Tax Benefits

If you’re eligible for any new tax reliefs or credits introduced in the Budget, be sure to claim them as this can reduce the amount of tax you pay—which could increase your disposable income. If you’re self-employed, it also might be worth looking into any new deductions available for possible business expenses.

Focus on Essential Spending

Since disposable incomes are likely to remain tight for many, it’s important to focus on more essential costs first and try to cut down on unnecessary spending.

Remember to only spend within your means and what you can afford. Particularly with online shopping, entertainment, and gambling. A reliable and trustworthy site like Johnslots will encourage you to stay safe and has several resources to help you stay on track with your spending.

Consider Investment Opportunities

If you're in a position to, using certain financial tools can make your money work go further. For example, Government-backed savings bonds or various ISAs are low-risk and can provide some modest returns.

Seek Professional Financial Advice

If you’re not sure where to start with your finances, it might be a good idea to get some professional advice from a financial adviser who can guide you through setting up a plan for your personal circumstances and they will take into account any potential tax changes or benefits.

Reduce Monthly Expenses

Look for ways to reduce your monthly expenses - like cancelling unnecessary direct debits and subscriptions, and shop around in order to get better deals on things like utility bills or insurance.

Set Up an Emergency Fund

Consider setting up an emergency fund to cover unexpected expenses for a rainy day. This can provide a financial safety net and can help you avoid debt later.

Conclusion

The UK's new Budget for 2024/2025 includes a few changes that will affect earnings as well as disposable income. While a lot of these changes are intended to ease some of the pressure for households with a lower income, ongoing issues like inflation and the increase in the cost of living are still overwhelming for many.

For those in the gaming industry and other entertainment sectors, there are still opportunities for growth despite some reductions in consumer spending. Overall, to make the most of this situation, it helps to stay informed and make the necessary adaptations to your budget wherever possible.