26 June 2025
If you are covering the latest income tax statistics from HMRC, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“The Conservative government’s decision to freeze income tax thresholds from 2021/22 has become one of the most punishing and wide-reaching stealth tax grabs in recent history. New projections from HMRC show the extent of this shift: since the freeze began, 6.1 million more people are expected to be pulled into paying income tax, including nearly two million more pensioners above state pension age, who are projected to number 8.72 million. The number of additional rate taxpayers is set to more than double from 520,000 to 1.23 million, and basic rate taxpayers are forecast to rise by three million to 30.4 million. The Treasury has grown hooked on the tax revenues this freeze generates, and like any addiction, it may prove difficult to kick even when the damage becomes clear.
"By 2025/26, 39.1 million people are expected to be paying income tax, up from 34.5 million just three years earlier. Nearly 78% will be in the basic or savers rate bands, while higher rate taxpayers are projected to increase by almost 40% to 7.08 million. At the very top, the burden is growing too. The top 1% of earners will still be paying 26.6% of all income tax, despite a slight drop from the 28.5% recorded in 2022/23.
"Many more people are now finding themselves caught in the so-called £100,000 tax trap, where the system can feel particularly punitive. Parents in this bracket not only see their personal allowance taper away, creating effective tax rates of over 60%, but also face the loss of child benefit and other reliefs. The cumulative effect is a system that can actively disincentivise progress and dampen ambition at precisely the point where people should be encouraged to advance.
"Labour has pledged to unfreeze thresholds in 2028, but whether it can afford to follow through is another matter. After four years of fiscal drag, the Treasury has become increasingly reliant on the quiet revenue boost these freezes deliver. Reversing that would come at a significant cost, particularly with pressure on public services and spending already high.
"If thresholds do remain frozen, then many more people across the earning spectrum will continue to be dragged into higher tax brackets through no change in their real income. It’s a politically difficult problem to unwind, but the longer it’s left, the more damaging and entrenched it becomes.”
