People are being pushed into higher tax brackets as their wages increase but income tax thresholds remain the same.
Frozen income tax thresholds helped the Treasury rake in extra money. (Image: Getty)
British taxpayers faced an extra £12 billion raid on their incomes this year as Rachel Reeves plots another sting. The Treasury collected £154 billion in revenue between April and September thanks to frozen income tax thresholds, HMRC data revealed. This marks a £12.41 billion increase from the same period in 2024.
Income tax thresholds were frozen until 2027-28 by the Tories, but extending this until 2029-30 would allow the Chancellor to rake in extra cash to fill the £50 billion fiscal black hole. Ms Reeves is expected to do this in her Autumn Budget next month, as well as freezing National Insurance thresholds, which the Institute for Fiscal Studies said could raise an extra £10.4 billion a year.
Keeping thresholds the same pushes people into higher tax brackets. (Image: Getty)
She has promised not to increase income tax, National Insurance, VAT or corporation tax, so keeping thresholds the same would allow the Treasury to make more money without breaking her pledge.
However, doing so already forced an extra 520,000 taxpayers into the 40% tax bracket last year, HMRC estimated.
As people’s wages increase but the rate of income tax remains the same, they are pushed up into a higher bracket – a process known as fiscal drag.
The latest estimate by the Office for Budget Responsibility (OBR) is that freezing income tax thresholds will raise over £38 billion a year in 2029-30.
Rachael Griffin, of wealth management firm Quilter, explained: “This doesn’t point to a roaring economy but a sign of a Treasury increasingly reliant on extracting more from the same taxpayers.
“With fiscal drag proving such a dependable source of income, the Chancellor may now be tempted to delay any unfreezing of thresholds, despite the political awkwardness that would bring.
“Reversing the freeze was positioned as a signature move in her first Budget, but maintaining it would quietly preserve billions in extra tax revenue.”
