Households earning over £35,000 have been warned to stay alert to a controversial tax policy maintained by Chancellor Rachel Reeves. The policy, known as frozen tax bands, could unexpectedly push workers into higher tax brackets, increasing their tax bills.
How Frozen Tax Bands Work
The government has kept income tax thresholds unchanged since 2021, and they are expected to remain frozen for the next five years. This means that as wages rise due to inflation or promotions, more people are dragged into higher tax brackets. Critics label this a 'stealth tax' because it allows the government to collect more revenue without officially raising tax rates.
Workers earning around £35,000 should be particularly cautious. If they receive a promotion or switch jobs, they could suddenly find themselves earning over £50,270—the threshold for the higher rate of income tax. Even a small pay rise for those currently just below £50,000 could shift them into the higher bracket.
What This Means for Workers
Employees need to understand these rules when making career decisions. An inflation-based pay increase alone might trigger a move into a higher tax band, resulting in a sudden rise in tax bills. The policy has faced criticism for its impact on middle-income households.
For those earning around £35,000, the risk is real. A promotion or new job could push their earnings above the £50,270 threshold, subjecting them to the higher rate of income tax. The Chancellor has defended the policy, but it remains a contentious issue.
In related news, the DWP is making changes to PIP, ESA, and Attendance Allowance in May. For more money-saving tips, sign up for our newsletter.
