Nearly one million Brits are being pulled into higher income tax bands, with rising wages pushing individuals into steeper rates without any change to tax thresholds. The prolonged freeze on personal tax thresholds is taking effect, with a significant impact felt by nearly 1m people across the UK. Our analysis reveals that this 'fiscal drag' will see an additional 500,000 individuals pay the basic rate of income tax (20% on earnings between £12,571 and £50,270), while approximately 410,000 more will face the 40% higher rate on income up to £125,140. A further 70,000 Britons will be subject to the 45% additional tax rate.
The data indicates that, as a result of this 'stealth tax', individuals can expect to pay an estimated £640 more in income tax this year compared to the financial year ending in 2025. This figure rises to £1,040 more than they paid in 2024. Regions such as London and the South East are disproportionately affected, accounting for over a quarter of higher and additional rate taxpayers – in contrast to the North East of England, which accounts for just 14.4%.
The freeze on personal tax thresholds, initially extended by former Chancellor Rachel Reeves, has increased the government's 'fiscal headroom' and facilitated further welfare spending. However, this policy is set to continue for the foreseeable future, ensuring that fiscal drag remains a significant factor in household finances.
Prime Minister Andy Burnham has signalled an intention to address the growing tax burden on British workers, indicating a willingness to review the £12,571 personal allowance band. Despite his spokesman's insistence that no immediate tax cut plans are being drawn up for this year, the Prime Minister stated that he would "look at that at the Budget". However, investor concern over potentially unfunded promises may be fuelled by the current state of public finances and costly government pledges.
Independent economist Julian Jessop has suggested that tax increases at the upcoming Budget are "pretty much guaranteed" given commitments to defence spending, VAT cuts on energy, tackling homelessness, and higher pay for junior doctors. Shadow Chancellor Sir Mel Stride echoed these concerns, stating that Prime Minister Burnham is "rapidly heading towards" further tax hikes, even after the previous government's efforts to raise £65bn in revenue.