Frozen tax thresholds to hold back Brits for ten miserable years
In March 2021 Chancellor Rishi Sunak described it as “a tax policy that is progressive and fair.” In November 2022, Chancellor Jeremy Hunt extended the policy, describing it as necessary and fair. In October 2024, Chancellor Rachel Reeves announced an end to the policy, saying extending it beyond 2028 “would hurt working people.” Alas, a year later in November 2025 she said that the policy will in fact endure until at least 2031. She acknowledged that doing so will “affect working people” but stressed that she was “asking everyone to make a contribution.”
What is this policy that united Tory and Labour Chancellors? The answer is frozen income tax thresholds. The move is irresistible to Chancellors in trouble, and they’ve all been in trouble.
Sunak was in the midst of the pandemic, which ultimately presented taxpayers with a £300bn bill. Hunt had to calm things down after the disastrous Liz Truss experiment and Rachel Reeves – just a year after raising taxes by £40bn – realised she needed the money.
Freezing the personal allowance and income tax thresholds, rather than allowing them to rise with inflation, is expected to bag the Treasury at least £50bn by 2031. By that point, the thresholds will have been frozen for a decade. That’s ten years during which inflation will pull millions of people into higher income tax rates, and millions more will have endured a punishing loss of take-home pay.
Is it any wonder so many people feel stuck?
Had the thresholds risen in line with inflation the personal allowance would be £16,000; the 40 per cent rate would kick in at £64,000 (instead of £50K) and the additional rate would bite at £191,000 instead of £125K. This last figure is particularly painful given Hunt cut the additional rate threshold from £150,000 in 2020.
All of this means that someone earning a modest £65,000 today is paying around £3,500 more in income tax every year than they would if the thresholds had never been frozen. Now consider that the amount raised by the Treasury thanks to a decade of this pernicious policy will amount to around a third of the increase in welfare spending over the same period. This is an astonishing state of affairs.
Is it any wonder so many people feel stuck? It’s the fiscal equivalent of being held back a year at school, again and again, when all you want to do is get on in life.