A freeze on income tax thresholds in the United Kingdom is projected to generate an additional £71 billion in revenue for the Treasury by the 2030-31 fiscal year, according to economists’ forecasts. This policy, initially introduced in 2021-22 and extended multiple times since, has resulted in millions more taxpayers being pushed into higher tax brackets than would have been the case if thresholds had continued to rise with inflation.

Analysis by the Institute of Fiscal Studies (IFS) based on Office for Budget Responsibility (OBR) data shows that by 2030-31, approximately 6.75 million additional people will be subject to income tax due to the freeze, with another 6 million moved into higher and additional rate tax bands. The IFS estimates an extra £71 billion in tax revenue attributable to the measure over the coming decade.

Income tax thresholds in the UK determine the income levels at which different rates of tax apply. The personal allowance, below which no income tax is paid, currently stands at £12,570, and the basic rate of 20% applies to income between £12,571 and £50,270. The higher rate of 40% applies from £50,271 to £125,140, while income above £125,140 is taxed at an additional rate of 45%. Before 2021, these thresholds were typically adjusted annually in line with inflation to prevent "fiscal drag," where wage increases push taxpayers into higher brackets without a real increase in spending power.

The freeze on thresholds, first introduced under former Chancellor Rishi Sunak and extended by subsequent governments, means the thresholds remain fixed in nominal terms. The OBR noted that if the personal allowance had risen with inflation since 2021, it would be nearly £4,900 higher by 2030-31, and the threshold for the higher tax rate would be approximately £20,100 higher.

The impact of the freeze disproportionately affects lower and middle earners. For basic rate taxpayers, the effective tax burden has increased by an amount equivalent to a 4% tax hike. Analysts at AJ Bell estimate that individuals paying the basic rate will have paid around £700 more in tax between 2021 and 2024 than if thresholds had been inflation-indexed, rising to an estimated £960 by 2031. Higher-rate taxpayers have faced even larger increases, potentially paying an additional £3,500 by next year.

The policy has drawn criticism, with opposition figures accusing the government of implementing a "stealth tax hike" that worsens the financial strain on struggling households amid rising living costs and energy prices. Gareth Davies, a Conservative Treasury spokesman, labeled it a “cash grab,” arguing that the government prefers to increase taxes on working people rather than reduce welfare spending.

Treasury officials have defended the threshold freeze, describing it as a targeted revenue measure rather than a broad increase in tax rates. They contend that it is necessary to fund public services and manage the fiscal deficit. Despite early indications from political leaders suggesting a potential review of the freeze, Chancellor John Healey’s recent Budget did not alter the policy, confirming its continuation until at least 2030-31.