Millions of households across the UK are facing a significant financial squeeze as Chancellor Rachel Reeves prepares to confirm an extension of frozen income tax thresholds in this week's Budget.
The 'Stealth Tax' Set to Continue
Tax bands have remained frozen since 2021, and Chancellor Rachel Reeves is expected to extend this freeze until 2030 when she announces the Budget on Wednesday. This policy effectively acts as a 'stealth tax' because as people receive pay rises and promotions, they are dragged into higher tax brackets without any changes to the threshold rates themselves.
Someone begins paying the higher rate of income tax when their earnings exceed £50,270, while the basic rate threshold starts at £12,570. The continued freeze means that individuals currently earning around £40,000, or even less, could find themselves pushed into the higher tax band in the coming years through career progression.
Who Will Be Affected by the Threshold Freeze?
The impact will be widespread, affecting both middle and lower earners. Millions of low-income pensioners will also be drawn into paying income tax at the basic rate as their earnings pass the £12,570 threshold.
At Prime Minister's Questions, Labour leader Keir Starmer refused to rule out extending the freeze, stating: "What we won't do is inflict austerity on the country as they (the Conservatives) did. What we won't do is go on a borrowing spree like they did."
Political Reactions and Broken Promises
Tory leader Susan Badenoch responded directly to the anticipated policy, stating: "It is quite clear they are going to freeze thresholds." She added a sharp criticism of the Chancellor: "If she (Reeves) breaks such a clear promise how can the public trust what she says?"
The extension of the tax threshold freeze represents one of the most significant financial measures in the upcoming Budget, with long-term implications for household finances across the income spectrum. With the freeze potentially lasting nearly a decade in total, the phenomenon of 'fiscal drag' will continue to pull more taxpayers into higher brackets year after year.
