More than 1.7 million workers across England, Wales, and Northern Ireland will either begin paying income tax for the first time or move into higher tax brackets due to the government’s decision to extend the freeze on tax thresholds for another three years. This measure represents the largest single revenue-raising element of Chancellor Rachel Reeves’s budget, projected to generate £12.4 billion by 2030-31.
The threshold freeze means that as wages increase with inflation, more workers will cross into taxable income territory or progress into the higher 40% tax band without any change in the actual threshold amounts. Scotland operates under a separate income tax system and will not be affected by this particular measure. The decision has become a focal point in debates about whether Labour violated its campaign pledge not to increase taxes on working people.
Chancellor Reeves defended the policy during multiple broadcast interviews, arguing that she had “kept that contribution to an absolute minimum” by implementing other targeted tax increases. She pointed to higher taxes on betting firms, properties valued above £2 million, and landlords as evidence that the government is asking those with greater means to contribute more proportionally.
Prime Minister Starmer supported this position, stating that while the budget “asked everybody to contribute,” the government had “done it in a fair way” and implemented “the least possible” impact on ordinary citizens. He justified the tax rises as necessary to fund three critical priorities: protecting the NHS, investing in education, and addressing cost of living pressures.
The government’s approach has drawn mixed reactions, with critics arguing that fiscal drag—the process of pulling workers into higher tax brackets through frozen thresholds—represents a stealth tax increase that disproportionately affects middle-income earners. Supporters counter that the targeted nature of other tax increases and the substantial investment in ending child poverty demonstrate a progressive fiscal policy.