Millions of households across the UK are bracing for a significant 'back door' tax increase that could cost workers thousands of pounds, according to a stark financial warning.
The Stealth Tax Freeze
Chancellor Rachel Reeves is poised to deliver the Autumn Budget on November 26, where she is expected to maintain a key policy inherited from the previous government. This policy involves the continued freeze on income tax bands, a move initially implemented by the Conservatives.
Laura Suter, Head of Personal Finance at AJ Bell, explains that this freeze acts as a stealthy tax hike. "The Conservative Party started the policy of freezing income tax bands as a stealth way to raise taxes, and Labour has opted to maintain it," she stated.
The Financial Impact on Workers
Because the tax bands have been frozen since 2021 and have not risen with inflation, people are effectively paying more tax each year. This impact has been magnified during recent periods of high inflation.
Ms Suter provided a clear example: "Someone earning £50,000 at the start of the income tax freeze in 2021 would have paid an extra £14,831 in tax by the end of the freeze in 2028."
The freeze is currently scheduled to last until 2028, but there is speculation that the Chancellor could extend it further. "If Reeves decides to extend that freeze, for example to 2030, then that extra tax paid increases to £23,449," Suter added.
What the Frozen Thresholds Mean
The figures reveal the scale of the hidden tax rise. The Personal Allowance remains at £12,570, but had it increased with inflation, it would have risen to £15,550 in the current tax year.
Similarly, the higher-rate threshold is stuck at £50,270. With inflation, this threshold would now be nearly £62,200. This freeze means more workers are being pulled into the higher tax bracket over time, a phenomenon known as 'fiscal drag'.
This policy represents a substantial financial burden on working people, implemented without a formal increase in tax rates, leaving many households facing a heavier financial load from November onwards.
