Chancellor Rachel Reeves is facing significant political criticism following her contentious decision to maintain frozen income tax thresholds, a move experts warn will function as a substantial 'stealth tax' on workers across the United Kingdom.
The Mechanics of a 'Stealth Tax'
By choosing to freeze the levels at which people start paying different rates of income tax, rather than increasing them in line with inflation or wages, Chancellor Reeves has set a fiscal trap for millions. As salaries naturally rise over time due to promotions, pay increases, or job changes, more individuals will be pulled into paying a higher proportion of their earnings to HM Revenue and Customs (HMRC).
The crucial higher-rate threshold remains fixed at £50,270. This means any employee currently earning just below this figure, for instance around £48,000 or £49,000, could be pushed into the 40% tax bracket with even a modest pay rise. The effect is not limited to higher earners.
Who Will Be Affected?
The theoretical impact of this policy is vast. Anyone earning approximately £35,000 or more is now considered vulnerable to seeing a greater share of their future income disappear in tax over the coming years. The issue spans the entire tax system.
At the lower end, workers earning just over the £12,570 personal allowance will begin paying the basic rate of income tax. The freeze is particularly acute for those on the cusp of the higher rate, who may find a hard-earned promotion financially dampened by a sudden leap in their tax liability.
The policy also casts a long shadow over retirement planning. While the Chancellor has confirmed that pensioners whose sole income is the State Pension will not be liable for income tax, millions with private pension pots will be affected. Those with even modest additional retirement income could find themselves paying tax they had not anticipated.
Political Fallout and Public Finance
The decision, announced as part of the government's fiscal strategy for 2026, has been swiftly dubbed a 'stealth tax' by opponents and economic commentators. The label stems from the fact that the Treasury automatically collects more revenue without the government having to officially raise tax rates, a less transparent method of increasing the tax take.
Critics argue this approach places an unfair burden on working households and middle-income earners during a period of continued economic pressure. The controversy highlights the difficult trade-offs facing the government between funding public services and managing the cost of living for ordinary citizens. The frozen bands are set to remain a key point of political and financial debate throughout the year.
