By Basant El-Faramawy
Income tax thresholds, frozen since 2021, will remain at current levels until April 2031 as planned, after which they are expected to rise with inflation, according to Office for Budget Responsibility documents released alongside the Budget.
The freeze, described as a stealth tax, has increased the proportion of income taken in tax over the past five years and is projected to raise £58bn by 2030-31, more than transport spending and close to defence spending.
Who is affected
The freeze affects anyone earning above the £12,570 personal allowance, with an extra 6.8 million people expected to pay tax by 2031 who would not have if thresholds had risen with inflation. Pay rises push more income above the frozen threshold.
Pensioners shielded
The state pension is set to exceed the personal allowance next April, but the chancellor introduced a new Pension Tax Allowance ensuring low-income pensioners with income up to the full new state pension will not pay income tax.
Higher rate taxpayers increase
Frozen thresholds drag more earners into the 40% higher rate bracket. An extra 5.4 million will become higher rate taxpayers by 2031. The higher rate threshold remains at £50,271 instead of £64,470 if adjusted for inflation.
National Insurance contributions
NICs use the same frozen thresholds, amplifying the effect. A 2024 cut to NICs has partly offset higher income tax bills for middle earners.
Post-2031 outlook
The Institute for Fiscal Studies estimates unfreezing now would save basic rate taxpayers up to £198 annually and higher rate taxpayers £395. The impact after 2031 depends on wage growth. Even in 2031, the personal allowance will be higher than in 2008.
