Chancellor Rachel Reeves has issued a stark warning to millions of UK households, confirming that income tax thresholds will remain frozen for the coming years. This policy, a continuation from 2021, acts as a stealth tax by pulling more workers into higher tax brackets without an official rate increase.
What the frozen tax bands mean for you
The decision to freeze the points at which people start paying different rates of income tax means that wage rises, promotions, or job changes could result in a significantly larger tax bill. The higher-rate threshold is currently frozen at £50,270. Consequently, individuals earning around £40,000 are now at particular risk of moving into this higher band with any increase in their salary.
Similarly, the personal allowance—the amount you can earn before paying any income tax—remains at £12,570. This freeze also endangers lower earners, who may start paying basic-rate tax for the first time if their earnings creep over this limit.
Pensioners and political fallout
The freeze will also affect millions of pensioners, though the Treasury has stated that those whose sole income is the state pension will not have to pay tax. The policy of fiscal drag—where tax bands don't rise with inflation—has already resulted in millions being dragged into higher bands since 2021.
The Labour government faces criticism over the move, having pledged not to raise taxes on working people before the election. Opponents accuse the party of misleading the public by raising revenue through this backdoor method. The Government, however, insists it has kept its promise by not hiking the main rates of income tax, National Insurance, or VAT.
The long-term impact of fiscal drag
By maintaining the frozen bands, the Treasury forecasts that millions more households will pay more to HMRC in the years ahead. This subtle form of revenue-raising has become a contentious feature of recent fiscal policy, placing sustained pressure on workers' take-home pay during the ongoing cost-of-living challenges. The Chancellor's announcement solidifies a path where nominal pay growth consistently translates into a higher tax burden for a growing section of the population.
