An estimated million more Britons will be affected by a de facto tax increase due to the continued freeze of income tax thresholds, according to new analysis. The TaxPayers' Alliance reports that half a million workers are expected to pay the basic rate of income tax for the first time this year as their earnings surpass the £12,750 threshold, which has remained unchanged.
In addition to those newly entering the basic rate band, the analysis indicates that approximately 410,000 individuals will be pushed into the higher rate tax band in the 2026-27 tax year, and an additional 70,000 will be subject to the top rate. The campaign group estimates that, on average, taxpayers will pay £1,040 more in income tax this financial year compared to the 2023-24 period. The overall projected income tax liability for the current financial year stands at £347 billion, an increase of £43 billion since the current government took office.
"Freezing thresholds lets ministers rake in billions without admitting they have raised taxes, hitting workers, pensioners and families across the country," said John O'Connell, chief executive of the TaxPayers' Alliance. He urged for the unfreezing of tax thresholds to provide relief to taxpayers.
There is ongoing uncertainty regarding the government's plans for the personal allowance. Prime Minister Andy Burnham had previously indicated that frustration over the personal allowance was a common concern heard from voters. However, statements from his allies suggested no firm commitment to raising the threshold, which experts estimate could cost up to £9 billion annually if adjusted. Burnham later stated that the issue would be reviewed during the autumn Budget, noting the sensitivity of making definitive statements on the matter.
Shadow Chancellor Sir Mel Stride commented on the situation, suggesting that the current government's fiscal policies could lead to increased borrowing and higher taxes, particularly if welfare spending is not managed effectively. He asserted that the government's announcements thus far do not present a clear plan for fiscal responsibility.