One million more people are forecast to pay income tax this year after Labour Prime Minister Andy Burnham abandoned hints of increasing the personal tax-free allowance, leaving it frozen at £12,570. This policy shift, confirmed in the 2026 Budget, means 500,000 additional workers will now pay the basic rate, 410,000 more will enter the higher rate, and 70,000 will face the additional rate. The total income tax liability for 2026-27 is projected to reach £347 billion, a £43 billion increase since Labour took office in 2024-25.
Fiscal Drag Hits Taxpayers Hard
Fiscal drag—where frozen thresholds push more income into higher tax brackets—is the primary driver of these increases. On average, taxpayers will pay £640 more in income tax in 2026-27 compared to 2024-25, and a staggering £1,040 more compared to 2023-24. This stealth tax rise has drawn sharp criticism from campaign groups and opposition MPs, who argue that Burnham's decision effectively raises taxes without a formal vote.
Income tax is charged on wages, salaries, profits from businesses, interest, dividends, and rental income. Most people qualify for allowances, but the frozen personal allowance of £12,570 means that even modest pay rises push individuals into taxable territory. The Office for Budget Responsibility estimates that by 2027-28, over 35% of income tax revenue will come from fiscal drag effects.
Regional Disparities Widen
The impact varies sharply across England. London and the South East have the highest concentration of higher and additional rate taxpayers: 25.9% of London income taxpayers pay the higher rate, compared to just 14.4% in the North East. This regional divide exacerbates existing inequalities, as workers in high-cost areas face disproportionate tax burdens.
John O’Connell, chief executive of the TaxPayers’ Alliance, condemned the move. “A million more Brits are being caught in the taxman’s net by stealth. Freezing thresholds lets ministers rake in billions without admitting they have raised taxes, hitting workers, pensioners and families across the country. If Andy Burnham really wants to give hard-working taxpayers breathing space, he should end fiscal drag and unfreeze tax thresholds.”
Burnham's U-Turn on Tax Promises
Shortly after becoming Prime Minister, Burnham signalled he might raise the personal allowance to ease the cost-of-living crisis. However, Treasury briefings later confirmed that no such change would appear in the autumn Budget, prompting accusations of a first major U-turn. Critics note that while Burnham campaigned on protecting workers, his government has instead overseen the largest tax burden in decades, with the overall tax-to-GDP ratio hitting 37.5% in 2026.
The freeze on thresholds is part of a broader fiscal consolidation aimed at reducing public debt, which rose sharply during the previous Conservative administration. However, economists warn that the approach may dampen consumer spending and economic growth. The Resolution Foundation has calculated that a worker earning £30,000 per year will pay an additional £465 in income tax in 2026-27 compared to 2024-25, while someone on £60,000 faces an extra £1,230.
What Can Taxpayers Do?
Taxpayers can mitigate the impact by maximizing their tax-free allowances, such as the personal savings allowance (£1,000 for basic rate payers) and the dividend allowance (£500 from 2025-26). Contributing to pension schemes also reduces taxable income. The government has introduced a new online tool to help workers estimate their tax liability, but campaigners argue that only policy reversals will provide real relief.
With the next general election expected in 2029, Burnham faces mounting pressure to address fiscal drag. The TaxPayers’ Alliance urges immediate action, while Labour backbenchers warn that continued stealth taxes could cost the party support in its northern heartlands. As inflation edges back towards target, the debate over tax thresholds remains a defining issue for Burnham's premiership.
