Frozen income tax thresholds, now locked in until at least 2031, will have held back the pay of British workers for a full decade, with the policy expected to hand the Treasury well over £50 billion and push one in four employees into the higher rate of income tax before the freeze is lifted.
The policy has outlasted three Chancellors and two governments. Rishi Sunak introduced it in March 2021, describing it as ‘a tax policy that is progressive and fair.’ Jeremy Hunt extended it in November 2022, calling it necessary and fair. Then, in October 2024, Rachel Reeves declared that prolonging the freeze beyond 2028 ‘would hurt working people,’ only to reverse that position in November 2025, announcing the freeze would continue until at least 2031. Reeves acknowledged the decision would ‘affect working people’ but said she was ‘asking everyone to make a contribution.’
The reason the policy keeps surviving is straightforward: it raises large sums without requiring a Chancellor to announce a tax rate increase. By holding the personal allowance and income tax thresholds flat rather than allowing them to rise with inflation, the government collects more from workers whose wages move upward in cash terms even if they are standing still in real ones.
What frozen income tax thresholds actually cost workers
The personal allowance has remained at £12,570. Had it risen with inflation, it would now stand at £16,000. The threshold at which the 40 per cent rate applies sits at £50,000; inflation-indexing would have put it at £64,000. The additional rate, currently triggered at £125,000, would not bite until £191,000 under an inflation-linked system. That last figure is especially sharp: Hunt cut the additional rate threshold from £150,000, compounding the squeeze on higher earners.
The practical effect for someone earning £65,000 is an income tax bill running around £3,500 a year more than it would have been had the thresholds never been frozen. That is not a small sum. Multiply it across a decade and it represents a substantial and sustained transfer of income from employee to state, dressed up as fiscal inaction rather than a tax rise.
According to the House of Commons Library, the latest Office for Budget Responsibility estimate is that the freeze will raise over £55 billion in 2030/31 alone, exceeding earlier projections. The Treasury’s own figure of at least £50 billion by 2031 now looks conservative.
Millions drawn into higher tax bands
The scale of fiscal drag across the workforce is considerable. According to Yahoo Finance UK, when the freeze was extended to 2027/28 it was expected to raise £26 billion a year by that point, bring 3.2 million more people into paying income tax at all, and pull 2.6 million more into the higher rate band. The same figures point to one in four workers paying the higher rate by 2030, a proportion that would have been difficult to imagine when the 40 per cent threshold was designed.
These are not high earners in any intuitive sense. A household with one income at £55,000 and another at £30,000 now finds itself with one member liable at 40 per cent on earnings that are, in many parts of the country, simply what a professional job pays. The freeze does not distinguish between a banker in London and a nurse who has worked through a decade of incremental pay awards.
Set against this, the amount the freeze will ultimately raise amounts to around a third of the increase in welfare spending over the same period. Workers who feel their take-home pay has failed to reflect their earnings growth are not imagining it: the mechanism is well understood, it is deliberate, and it has now been endorsed by administrations of both main parties.
With the freeze confirmed until at least 2031, the UK government will face renewed pressure at each Budget over whether to extend, unwind or replace a policy that began as a pandemic measure and has since become a structural feature of the tax system. Reeves has already reversed one commitment on this; the trajectory from here is, at minimum, uncertain.
