Millions of British workers are set to be pulled into a higher income tax bracket due to a major government shake-up of the personal tax system, according to new analysis.
The Scale of the Tax Threshold Freeze
Data from the influential Institute for Fiscal Studies reveals that extending the freeze on income tax thresholds will result in one in four workers paying the higher rate of tax. The number of income taxpayers across the UK is projected to reach 42.1 million by 2030, representing a staggering 73% of all adults aged over 16.
This figure stands at 960,000 higher than under existing plans and a massive 5.1 million higher than if thresholds had increased with inflation since 2021. The IFS has described this prolonged freeze as representing one of the most significant changes to the personal tax system in recent decades.
Impact on Higher Rate Taxpayers
The research indicates that if Chancellor Rachel Reeves chooses to extend the freeze on income tax thresholds at the Budget on November 26, the consequences for workers will be substantial. By the end of the decade, more than 10 million workers will find themselves paying the 40% income tax rate.
This represents a dramatic increase from the current landscape. Over the course of this decade, the number of people paying the higher rate will have risen from just under four million to more than 10 million, fundamentally reshaping who pays tax and at what rate in the United Kingdom.
Expert Analysis and Warnings
Matthew Oulton, an economist at the IFS, commented that freezing the thresholds represents a “huge tax rise” on workers across the nation. He stated: “The freezes to personal tax thresholds have already represented a huge tax rise. Extending them would raise significant revenue in a broad-based and progressive way.”
Oulton further explained that the policy would increase tax on all employees working full-time, most working part-time, most minimum wage workers and many low-income pensioners. While acknowledging that changing thresholds is a reasonable tool for the Chancellor to use, he criticised the practice of setting freezes many years in advance, noting that “how big the tax rise turns out to be depends upon the unknown and unpredictable path of inflation.”
The extension of the income tax threshold freeze is poised to become one of the most significant fiscal policies affecting British workers in the coming years, with millions set to feel the impact on their take-home pay.
