GBTT Investigation · Tax
How frozen thresholds are quietly emptying your wallet. No Chancellor stood at the despatch box and said “I am raising income tax.” They did not need to.
No Chancellor has stood at the despatch box and said, “I am raising income tax.” They did not need to. Since April 2021, the government has simply stopped moving the goalposts — and let inflation do the work instead.
This is fiscal drag. Wages rise. Thresholds stay still. More of your income falls above the tax-free line. More of it tips into the higher-rate band. Your tax bill goes up. The rate on your payslip stays identical.
The Office for Budget Responsibility describes it plainly: fiscal drag raises significant sums as the average effective tax rate rises more quickly over time. The mechanism requires no legislation to change tax rates. It requires only inaction.
March 2021 — Sunak starts the freeze. Rishi Sunak announced that the personal allowance would rise to £12,570 in April 2021, and then stay there until 2026. The higher-rate threshold would be fixed at £50,270 over the same period. The OBR projected at the time the move would create 1.3 million new income taxpayers and one million more higher-rate taxpayers. Sunak called it “a progressive way to raise money.” It was also invisible on every pay packet in the country.
Autumn Statement 2022 — Hunt extends to 2027-28. Jeremy Hunt added two more years. A four-year freeze became a six-year freeze. The OBR’s March 2023 outlook put the combined measures at £29.3 billion a year (1.0% of GDP) by 2027-28. On HMRC’s own ready reckoners, that is the equivalent of a 4p rise in the basic rate — except nobody called it that. The six-year freeze would also drag the real value of the personal allowance back to its 2013-14 level.
Autumn Budget, November 2025 — Reeves extends to 2030-31. Rachel Reeves had pledged in her first Budget in 2024 that the freeze would not be extended beyond 2028. She broke that pledge. In the November 2025 Autumn Budget, thresholds were extended for a further three years to April 2031. The OBR estimated the extension alone would raise around £3.1 billion in 2028-29, rising to £11.6 billion in 2030-31. Counting every freeze from 2022 to 2031, the policy now yields £56 billion a year by 2030-31.
The OBR’s November 2025 forecast confirmed that the income tax freezes at the basic, higher and additional rates are set to yield £56 billion in 2030-31. AJ Bell translates that to roughly £1,300 per taxpayer a year, on average.
Put another way: by the time the freeze ends, the Treasury will collect the equivalent of a 4p rise in the basic rate of income tax — without ever announcing a rate rise. The earlier 2023 analysis had the annual yield at £29.3 billion by 2027-28. Reeves’ three-year extension pushed the total far beyond what either Sunak or Hunt first projected.
The scale of fiscal drag is larger than any Chancellor originally admitted:
The higher-rate threshold was supposed to protect the merely well-paid from the same marginal rate as top earners. It no longer does. A nurse, a teacher, an experienced IT worker — all can find themselves in the 40% bracket without being, by any reasonable measure, “high earners.”
A declared tax rise is legible. It appears in a Budget headline. Journalists cover it. Voters process it. Politicians are accountable for it.
A threshold freeze does none of that. It shows up as a bigger deduction on a payslip, with no line reading “frozen threshold surcharge.” The BBC called it a “stealth tax” precisely because it is not immediately apparent on your payslip, unlike an increase in the headline rates.
It is also uneven. A 4p rate rise applies proportionally to all income above the threshold. The freeze hits hardest at the points where people cross a band: someone who moves from basic to higher-rate tax during the freeze sees their marginal rate jump from 20% to 40% at a line that used to sit further away. That cliff did not move to find them. They walked into it because wages rose and the threshold did not.
AJ Bell’s analysis of the Reeves extension alone — the three years from 2028 to 2031 that Labour added — shows:
These sit on top of the tax already absorbed during the Sunak and Hunt years. AJ Bell’s cumulative work found a worker earning £50,000 at the start of the freeze in 2021 would pay close to £15,000 more income tax over the full period than they would have under inflation-linked thresholds.
Without the freeze, the OBR estimates the personal allowance would have reached £17,470 by 2030-31, and the higher-rate threshold £70,370 — more than £20,000 above the frozen £50,270. Instead, both are locked where they were set in 2021.
The freeze does not discriminate, but it punishes entry-level earners in a specific, immediate way. The personal allowance sits at £12,570. From April 2026, LITRG notes, minimum-wage workers start paying income tax after roughly 20 hours a week. The Institute for Fiscal Studies puts even an 18-hour minimum-wage week inside the tax net.
Someone who graduated in 2021 and has had only modest pay rises has spent their entire working life so far in a system where threshold freezes quietly consume part of every increase. They have never known a tax system where thresholds tracked inflation. By 2031, that will have been true for a decade. The full new state pension, meanwhile, is on course to exceed the personal allowance in 2027-28 — at which point pensioners living solely on the state pension begin paying income tax too.
The appeal for any Chancellor is obvious. You do not break a manifesto pledge not to raise income tax rates. You do not announce a rise. You do nothing, and the revenue accumulates.
Reeves did not invent the trick. She inherited a policy with 2021 fingerprints. But she has now owned it twice: first by keeping the Sunak-Hunt freeze through her first Budget, and again by extending it in November 2025, after explicitly saying she would not. The OBR’s November 2025 outlook has the tax-to-GDP ratio reaching an all-time high of 38.3% in 2030-31, with roughly two-thirds of the rise in the tax take since 2019-20 coming from personal taxes — chiefly the threshold freeze. This is not a marginal instrument. It is the primary fiscal tool of two successive governments.
Thresholds are currently expected to start rising again from April 2031. There is no guarantee of that. There was no guarantee before November 2025 either.
Had thresholds tracked CPI since 2021, a basic-rate taxpayer would be protected by a personal allowance worth roughly £15,700 today. Instead it is £12,570, and will stay there until at least 2031. The £56 billion is not a worst case. It is the OBR’s central forecast for what the Treasury collects as a direct result of that gap.
This is not your parents’ tax system, and it is not an accident. Three Chancellors, two parties, one method: leave the thresholds still and let inflation raise the money that no one wanted to be seen raising.
The people who feel it first are the ones with the least room — the young, the low-paid, the pensioner on the state pension alone. None of them will see a line on a payslip explaining why.
A tax you cannot see is still a tax. The numbers are in the record.