Pensioners, Fiscal Drag, and the November Budget

23rd November 2025

As the Chancellor prepares to deliver the Autumn Budget on 26 November, pensioners across the country are bracing for changes that may not be announced with fanfare but will be felt in their pockets nonetheless. The issue at hand is not a headline tax rise, but something subtler: fiscal drag. This quiet mechanism of taxation is set to shape the financial reality of millions, especially those living on fixed incomes in rural Scotland.

Fiscal drag occurs when tax thresholds are frozen while incomes rise. In practice, it means that people pay more tax without any official increase in rates. For pensioners, the dynamic is particularly stark. The state pension, protected by the triple lock, continues to rise each year in line with inflation, earnings, or 2.5%—whichever is highest. Yet the personal allowance, the amount of income you can earn before paying tax, has been stuck at £12,570. As pensions climb, more retirees cross the threshold and find themselves paying tax for the first time. What feels like a reward for years of contributions quickly becomes a liability.

In Caithness and the Highlands, where heating costs and transport expenses are already higher than the national average, this creeping tax burden bites harder. Pensioners who rely on modest occupational pensions alongside the state pension may see their disposable income shrink just as winter bills rise. The Budget may not announce a tax hike, but the effect is the same: less money in the hands of those who can least afford to lose it.

Yet fiscal drag is not confined to pensioners. It affects all taxpayers. Workers whose wages rise with inflation are pulled into higher tax bands, even if their real purchasing power has not improved. Families who once sat comfortably below the higher-rate threshold find themselves paying 40% tax on earnings that barely cover rising mortgage and grocery costs. In this way, fiscal drag is a stealth tax, eroding living standards across the board while allowing governments to claim they have not raised taxes.

For pensioners, however, the impact is uniquely harsh. Unlike workers, they cannot increase their hours or seek promotions to offset the burden. Their incomes are largely fixed, and their expenses—particularly energy—are disproportionately high in rural areas. The Budget's silence on thresholds is, in effect, a policy choice that shifts the weight of fiscal adjustment onto those least able to adapt.

The broader question is one of fairness. Should pensioners, who have already contributed over a lifetime, be taxed more heavily simply because the state pension rises? Should workers see their modest pay increases swallowed by frozen thresholds? Fiscal drag may be invisible in the Chancellor's speech, but it is visible in every household budget. It is a reminder that taxation is not only about rates and reliefs, but about the quiet mechanics that determine who pays, and how much.

As communities in the Highlands gather to discuss resilience and wellbeing, this issue deserves attention. Pensioners are not alone in facing fiscal drag, but they are among the most vulnerable. The November Budget may pass without dramatic announcements, yet its consequences will ripple through rural kitchens and living rooms long after the Chancellor sits down.

The screw may be tightened further as several commentators including BBC Radio 4 Moneybox programme Saturday 22 November 2025 suggested the allowance freeze may be extended for a further two years dragging in more people into paying tax and for some higher rates.

Comment
Effectively the freeze on personal allowances causing fiscal drag is a tax increase for almost everyone making a mockery of Labour saying they are not increasing some taxes. Tip toeing around the matter is just plainly not telling the truth - a lie.