A million Brits have been warned that they could face higher tax rates if Rachel Reeves extends the threshold freezeon income tax. The Chancellor has previously vowed to end the scheme, which has been in place since 2022.
It is due to end in 2028 but extending it until 2030 could bring in another £10 billion for the Treasury, according to the IFS think-tank. By 2028, there will be another 3.5 million people in the higher-rate band and 600,000 more in the highest band. By 2030, another 400,000 more people would be paying income tax and 600,000 into higher and additional rates. The Treasury’s watchdog predicts the freeze will have raised £48.9 billion by 2030 – 1.4% of GDP. Around 14% of adults will be paying the 40p rate, compared to less than 4% in the early 1990s.
IFS director Helen Miller told BBC Radio 4’s Today programme that extending the freeze “absolutely would” be a tax on “working people”.
She said: “The big problem I have with that measure is the lack of transparency. It is a big tax rise but not one that people are going to see very easily.”
Rachel Reeves told MPs during her Budget: “Having considered this issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips.
“I am keeping every single promise on tax that I made in our manifesto. There will be no extension of the freeze in income tax and National Insurance thresholds beyond the decisions by the previous government from 2028-29.”
At PMQs on Wednesday, Sir Keir Starmer guaranteed that thresholds will not be frozen again. He said: “We will stick to our manifesto commitments, we will stick to our fiscal rules.”
A Tory spokesman said: “The Prime Minister emphatically ruled out any rises in income tax, NI or VAT. But he wouldn’t repeat the promise his Chancellor made in the autumn to lift the freeze on income tax thresholds.
“He also refused to rule out a retirement tax and wealth taxes. The only reasonable conclusion is that a toxic cocktail of Labour tax rises are coming in the autumn budget.”