New analysis suggests that approximately one million more people are expected to pay income tax or move into a higher tax band this year. This increase is attributed to the ongoing freeze on personal tax allowances and higher-rate thresholds.
The Taxpayers' Alliance, a campaign group, indicates that around 500,000 lower-paid workers will start paying income tax for the first time. The freeze, initially introduced in 2021 and extended in the 2025 Budget until 2030-31, causes 'fiscal drag' as wages rise while tax thresholds remain constant.
The analysis, based on HMRC and Office for Budget Responsibility (OBR) data, estimates an additional 500,000 basic-rate taxpayers, 410,000 higher-rate taxpayers, and 70,000 additional-rate taxpayers this year. This would bring the total number of income taxpayers to almost 41 million.
HMRC receipts for 2026-27 are projected to be £347bn, an increase of £43bn since Labour took office. The Taxpayers' Alliance estimates the average taxpayer is now paying £640 more than in 2024-25, and £1,040 more than in 2023-24.
Prime Minister Andy Burnham has hinted at reviewing the personal tax allowance, confirming it would be considered in the next Budget, but made no firm commitment to change it. The Institute for Fiscal Studies (IFS) estimates that unfreezing the threshold could cost between £8.5bn and £9bn annually.