Frozen income tax thresholds now seemingly a structural feature of the tax system

26 November 2025

If you are covering the freeze of income tax and NI thresholds, please see the following comment from Rachael Griffin, tax and financial planning at Quilter: 

"In a shambolic turn of events even before the budget has started the freeze on income tax levels to 2030/31 has been revealed by an OBR leak. The multi‑year freeze on income tax thresholds has now been extended, locking households into one of the most powerful stealth tax rises in modern fiscal policy.

"Reeves has had to renege on what was her rabbit out of the hat moment at her maidan Budget. Given in her speech last year, she said that an extended freeze would hurt working people, this must represent breaking the party’s manifesto pledge.

"With wages rising while thresholds stand still, millions more people will drift into higher tax bands regardless of whether their real living standards have improved. What had initially been framed as a temporary measure has now seemingly become a structural feature of the tax system and will significantly increase the tax take over the rest of the decade.

"For workers across the spectrum, the impact is sharp. Pay growth that would once have felt like genuine financial progress now pushes people into higher rates of tax far earlier than expected. Had the £12,570 personal allowance risen in line with inflation from when it was first frozen in 2021 until now, it would be worth £15,714. Had the £50,270 higher rate threshold done the same, it would be worth £62,845 today. The pressure is felt most acutely by those around the higher rate threshold and those on the cusp of losing their personal allowance at £100,000, where the effective marginal rate reaches 60 per cent. Extending the freeze compounds these pressures for years to come. When first introduced in 2021 the OBR estimated the freeze was expected to raise £8 billion a year by 2025/26 bringing 1.3 million more into paying tax and 1 million more into paying higher rate. When extended to 2027/28, it was expected to raise £26 billion a year by 2027-28, bring 3.2 million more into paying tax and 2.6 million more into paying higher rate.

"The policy raises substantial revenue without increasing headline rates, but the cost is transparency. Households will feel the squeeze long before they understand where it came from. The extension also risks distorting work incentives and delaying progression as more of any additional income is clawed back."

How this will impact workers

The below calculations assume 3% inflation and 5% wage growth