Policy Impact Assessment: Autumn Budget Statement 2026.

Author

Frimpong Rejoice

Publication Date

Feb 2026

Abstract

Purpose and scope: This analysis assesses the cumulative impact of the Autumn Budget Statement 2025 on UK residents over the period 2026-2030. The Budget has been passed by Parliament and will be implemented beginning in April 2026. This report models policy impact on the UK population using UKMOD (a UK microsimulation model), which captures effects on all households and individuals, including both those with market income (employment earnings, self-employment income, private pensions, investment income) and those without market income (such as households reliant solely on state benefits and pensions). The analysis covers the UK population weighted to represent the national demographic and economic composition. What this analysis compares: The analysis compares baseline scenarios for each year from 2026 to 2030 under pre-Budget legislation with reform scenarios in which the Autumn Budget Statement 2025 policies are implemented. Each year represents a separate comparison between baseline and reform scenarios, with identical market incomes and economic conditions, to isolate pure policy effects. Market income is identical between scenarios in each year because both use the same Office for Budget Responsibility (OBR) November 2025 uprating forecasts applied to 2023 input data. This ensures that all measured differences reflect policy changes only, and not differences in economic assumptions or forecast. The poverty line and decile groups are held fixed at baseline levels for each year. This ensures that measured poverty reduction reflects individuals crossing a consistent income threshold because of policy changes, rather than shifts in the overall income distribution. All monetary values are expressed in nominal terms for each respective year. This is a comprehensive policy package combining immediate benefit increases (two-child limit removal effective from April 2026) with phased tax changes (dividend tax increases from April 2026; property and savings tax changes from April 2027; and threshold freezes through to April 2031). Market income composition: Market income represents pre-government income (employment earnings, self-employment income, private pensions, and investment income) before any tax or benefit policies are applied. The policy changes affect how the government interacts with this market income through taxes and benefits. By doing so, they change work incentives, which in turn might lead to changes in labour supply behaviour. These behavioural changes are not considered here. Market income grows from £1,474 billion in 2026 to £1,626 billion in 2030 due to OBR uprating forecasts but remains identical between baseline and reform scenarios within each year. UKMOD Implementation: Benefit Reforms: • Remove of the Universal Credit two-child limit (from April 2026) Tax Reforms: • Maintain income tax and National Insurance (NI) thresholds at current levels until April 2031 (fiscal drag) • Maintain employer NI secondary threshold at current level until April 2031 • Increase dividend tax rates by 2 percentage points (from April 2026) • Introduce separate property income tax rates: 22%, 42%, 47% (from April 2027) • Increase savings tax rates by 2 percentage points (from April 2027) Fuel Duty: • Cancel uprating for 2026-27; extend 5p cut to August 2026, followed by gradual increases Headline Findings for the United Kingdom: Net Poverty Impact: Overall poverty decreases by 21,738 people in 2026 (after housing costs), with the poverty rate declining from 18.40% to 18.37%. Approximately 13,193 children are lifted out of poverty, as child poverty falls from 23.8% to 23.7% (-0.09 percentage points). Working-age adult poverty decreases by 13,784 people, with the poverty rate declining from 19.4% to 19.3% (-0.1 percentage points). However, approximately 5,239 elderly residents fall into poverty as pensioner poverty increases by 0.04 percentage points from 19.3%. The removal of the two-child limit benefits families with three or more children, with 21,770 people in households with children lifted from poverty. This gain is partially offset by the increase in poverty among the elderly driven by dividend tax increases and Pension Credit dynamics. Fiscal Position: The policy package generates a net fiscal improvement of £1.0 billion in 2026, growing to £1.4 billion by 2030. Tax revenue increases by approximately £1.4 billion in 2026 (+0.3%) primarily from personal income tax changes (+£1.2 billion, +0.4%) driven by income tax threshold freezes creating fiscal drag effects. Benefit expenditure increases by approximately £364 million in 2026 (+0.1%) from Universal Credit two-child limit removal (+£714 million), partially offset by Winter Fuel Allowance restrictions (-£269 million) and Pension Credit reductions (-£127 million). Personal income tax increases comprise non-devolved taxes (+£1.2 billion), Scottish devolved taxes (+£43 million), and Welsh devolved taxes (+£132 million) in 2026. Council Tax shows no change, while Employee and Employer National Insurance contributions show minimal increases (+£7 million and +£27 million respectively). Universal Credit spending increases by £714 million following the removal of the two-child limit, with additional increases in Council Tax Benefit/Reduction (+£59 million) and non-means-tested benefits (+£179 million). Winter Fuel Allowance savings (-£269 million, -64.7%) and Pension Credit reductions (-£127 million, -2.1%) partially offset Universal Credit costs. Distribution of Impacts: Only 1.78% of UK households are estimated to gain more than 1% of equivalised disposable income in 2026, while 6.49% experience losses exceeding 1%, indicating more households lose than gain overall. The majority of households (91.73%) see minimal income change (<1% either way). Families with children show net positive outcomes from two-child limit removal (1.42% gaining versus 0.20% losing). Among lone parents 2.76% gain and 0.46% lose, while for families with three or more children 2.17% gain and 0.25% lose, with all gainers experiencing income increases exceeding 5%. By contrast, elderly households experience adverse impacts (27.3% losing versus 1.58% gaining), primarily from dividend tax increases and Pension Credit dynamics affecting elderly investors. No-earner households show 22.2% losing and 4.07% gaining reflecting similar dynamics. Changes in the Income Distribution: Mean disposable income remain largely stable across deciles despite the policy changes. After housing costs, income in the lowest decile (1) - increases marginally from £158.75 per week to £159.19 per week (+£0.44 per week, or +£23 annually). While income in the highest decile (10) is £1,973 per week in both scenarios (-£0.26 per week, or -£14 annually). Income shares barely shift, with all changes under 0.1 percentage points across deciles and household types. Income inequality falls slightly, with the Gini coefficient declining from 0.339 by -0.000085 after housing costs. While targeted benefit increases for families with three or more children produce gains for specific households, the overall income structure remains largely unchanged. However, the concentration of losses among elderly households creates adverse distributional effects for this vulnerable group, with 27.3% of elderly households experiencing income losses and pensioner poverty increasing by 5,239 people in 2026.

Publication type

CeMPA Working Paper Series

Series Number

CEMPA3/26

Research area

Tax and benefit systems

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