Key facts
- Nearly one million people will be pushed into higher tax bands due to frozen tax thresholds, according to the Taxpayers' Alliance.
- Approximately 500,000 more individuals will pay the basic rate of 20% income tax.
- An additional 410,000 people will fall into the higher rate tax bracket of 40%.
- The number of additional rate taxpayers has multiplied five times.
- Average income tax payments are projected to increase by £640 this year compared to the financial year ending 2025.
Nearly one million people in the UK are expected to pay higher income tax rates due to 'fiscal drag,' a phenomenon where frozen tax thresholds mean wage growth pushes individuals into higher tax bands. Analysis by the Taxpayers' Alliance indicates that this 'stealth tax' will affect approximately 500,000 more people in the 20% basic rate band, 410,000 more in the 40% higher rate band, and an additional 70,000 in the 45% additional rate band. The number of additional rate taxpayers has reportedly multiplied five times.
On average, individuals are projected to pay £640 more in income tax this year compared to the financial year ending in 2025, and £1,040 more than in 2024. The freeze on personal tax thresholds, extended by former Chancellor Rachel Reeves until April 2031, is intended to increase government revenue and fund welfare spending.
Prime Minister Andy Burnham has suggested he will examine the tax burden on workers and is open to revising the £12,571 personal allowance band. However, his spokesman indicated no tax cut plans are currently being drawn up for this year, though Burnham stated he would 'look at that at the Budget.' Independent economist Julian Jessop anticipates tax hikes at the upcoming Budget are 'pretty much guaranteed' due to government pledges on defense spending, VAT cuts on energy bills, rough sleeping initiatives, and junior doctor pay increases. Shadow Chancellor Sir Mel Stride criticized the government's fiscal plans, suggesting they do not add up and will lead to increased borrowing and higher taxes.