Millions of workers are being warned about a tax change that will affect earnings over the next few years. The update relates to frozen income tax thresholds, a policy that gradually pulls more people into higher tax bands as wages rise. It means many people could end up paying more, even though tax rates themselves have not changed. And new analysis shows that some middle-income workers will feel the biggest impact.
Rachel Reeves confirmed in her Budget that the freeze will remain in place for longer than expected. It has already been running for several years, but instead of ending sooner, it will now stay until 2031. The measure sits alongside other tax and spending plans, but experts say this one will be the biggest contributor to rising tax bills. Research from the Institute for Fiscal Studies (IFS) shows the effect will be uneven, with many middle earners facing noticeably higher costs.
According to the analysis, someone earning £46,000 will pay an extra £410.46 a year by the time the freeze ends.
A worker on £48,000 will pay £603.50 more. And people on much higher salaries may not see the same increase. The IFS calculated that someone earning £150,000 will pay an extra £393.59, which is less than many middle earners pay.
Lower earners are also affected. A worker earning £12,000 a year is expected to pay £220.15 more, which is a far bigger share of their income.
The IFS says the freeze will bring millions more into the tax system for the first time, while pushing others into the 40p tax band.
Shadow Chancellor Sir Mel Stride criticised the move strongly, saying: “Rachel Reeves is trying to pull the wool over Britain’s eyes. She said the wealthiest would contribute the most, but the biggest tax rise in her Budget was a stealth tax which hits middle earners the hardest.
“This isn’t economic necessity, it’s a choice, with working people’s pay packets being raided to fund Labour’s decision to increase the benefits bill.
“Rachel Reeves wants to pretend she is protecting working people, but in reality she is punishing them.’”
The Government has rejected the criticism. The Treasury says its own “distributional analysis” shows that the top 10% of earners will lose the most when all Budget measures, including the planned mansion tax, are combined.
But the figures still show how the threshold freeze is pulling ordinary workers into higher taxation.
The policy dates back to 2022, when Rishi Sunak introduced it to help manage post-pandemic debt.
It was later extended by Jeremy Hunt. When Labour was in Opposition, Rachel Reeves compared the idea to “picking the pockets” of working people.
At her first Budget in 2024 she ruled out further extensions, saying it would “hurt working people” and break Labour’s promise not to raise income tax.
But weaker-than-expected economic growth and reversals on earlier welfare plans meant the freeze was extended again in November, this time until 2031.
Experts now say the nine-year freeze is on track to become the largest stealth tax in modern history, the Daily Mail reports.
By the end of the period, the IFS expects 5.2 million low earners to be brought into paying income tax for the first time. Another 4.8 million middle earners will move into the 40p band, a rate originally meant only for the highest-paid workers.
