Households will, on average, be 2 per cent worse off next year as a result of measures in Budget 2026, assuming wages grow as expected, the Economic & Social Research Institute (ESRI) says, with low-income households faring worse.
The think tank said the Government’s decision not to repeat one-off cost-of-living measures was responsible for much of the adverse effect of the budget on household income.
“This loss will be felt across the income distribution, with low-income households losing significantly more as a proportion of their disposable income compared to high income households,” the ESRI research said.
“The withdrawal of temporary measures results in losses of 4.1 per cent of disposable income for the lowest income households compared to losses of 0.3 per cent for higher income households.”
We fielded hundreds of questions from readers after Budget 2026 – Dominic Coyle goes through the issues that stood out. Video: Dan Dennison Conor Pope takes us through the top items from Budget 2026. Video: Dan Dennison
Claire Keane, an associate research professor at the ESRI, said: “The inevitable withdrawal of the temporary cost-of-living measures will impact those on lower incomes more.
“Some, but not all, of this loss is compensated by increases in social welfare rates that are ahead of both price and wage growth.”
High-income households, on the other hand, would see the losses from the ending of one-off measures exacerbated by the freeze to tax bands and credits, which, the ESRI said, “amount to an effective tax rise if wages grow at their forecasted rate of 3.7 per cent in 2026″.
The decision to retain the 9 per cent VAT rate on electricity as well as the extension of that VAT rate to food and hairdressing businesses might deliver a small positive effect, if passed on, with higher-income households likely to benefit to a greater degree, the ESRI said.
The ESRI takes a more positive view of budget moves to address child poverty which, it said, were “well-targeted”.
[ Budget 2026: Little for middle-income earners amid VAT cuts and public spending ]
“Budget 2026 begins the process of tackling child poverty and deprivation,” Karina Doorley, an associate research professor at the think tank, said.
“While the child-related measures are well targeted, they result in a relatively small decrease in the child poverty rate as they are accompanied by the withdrawal of temporary measures. More investment will be needed to achieve Government targets.”
However, it remained concerned at spending plans.
“Budget 2026 proposes strong net spending growth in a time of economic buoyancy. This risks overheating the domestic economy and leaves less space to act if a downturn occurs,” ESRI associate research professor Conor O’Toole said.
“Furthermore, the share of total tax coming from windfall corporation tax receipts is both substantial and increasing, while the underlying deficit – excluding these taxes – is widening.”
Taking the past six budgets together, the ESRI said that, compared with a scenario of income-indexed budgets since before the pandemic, households were slightly worse off by about 1.2 per cent of disposable income.
Those in the lowest income group, however, have seen positive income effects, ahead of both price and wage growth overall.
Policy changes have been nudging poverty rates down since 2020 for most groups, with the exception of the elderly poverty rate, which will be up four percentage points in 2026 compared with a series of income-indexed budgets, the ESRI said.