𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Millions of middle income workers will be clobbered if Rachel Reeves extends the freeze on income tax and national insurance thresholds, new analysis warns. The tax paid on a median income will be £2,310 higher at the end of the decade than had it not been frozen four years ago.

Ms Reeves is looking at extending the freeze until 2029/30. Some £1,698 of the increase has already taken place since 2021/22 when it was first introduced by the Tory party. The TaxPayers’ Alliance, which campaigns for lower taxes, has warned ahead of Wednesday’s Budget that national insurance and income tax on the average earner will be 19% by 2029/30 if the Chancellor presses ahead with the plans.

Two more years of frozen thresholds would alone add £173 in taxes to those on the median income, they warned.

Those on the lowest incomes will be hardest hit proportionally, with income tax and national insurance being 30%.

Pensioners will also be impacted, with the new state pension exceeding the personal allowance for the first time in 2027-28.

By 2029-30, £189 of tax will be due on the state pension alone.

Other frozen thresholds include ISAs, which are £7,000 lower in 2025-26 compared to if they had risen in line with inflation, the starting rate for savings which is £1,750 lower and the combined inheritance tax nil rate band and residence nil rate band which is £234,000 lower.

The TaxPayers’ Alliance is calling for benefits to be frozen for as long as tax thresholds are frozen, to ensure fairness between workers and benefits recipients.

Shimeon Lee, policy analyst of the TaxPayers’ Alliance, said: “Freezing tax thresholds is an act of fiscal duplicity, with successive governments using this dirty trick to raise revenues without being upfront with taxpayers.

“And with benefits remaining unfrozen, there is a serious unfairness in the system as working Brits face increased taxes while those on taxpayer-funded benefits see their standard of living protected.

“The chancellor should ideally be uprating thresholds across all taxes to where they would be if they weren’t frozen, but at the very least she shouldn’t be extending the freeze any further and she should be freezing benefits for as long as thresholds remain frozen.”

Ms Reeves has pledged to “grip the cost of living” in her Budget.

Writing in the Sunday Times she added: “There is an urgent need to ease the pressure on households now. It will require direct action by this Government to get inflation under control.”