Chancellor John Healey’s first budget left UK income tax thresholds frozen for another year, extending a policy that the Office for Budget Responsibility says will push the share of taxpayers paying higher or additional rates from 15% in 2021-22 to 24% in 2030-31.
Income tax thresholds will remain frozen after John Healey’s first budget as chancellor, according to budget documents. The move extends a policy that has been in place since 2021, when then-chancellor Rishi Sunak froze thresholds from April 2022 until 2026. The Conservative government later extended the freeze to 2028, and last year’s Labour budget, delivered by Rachel Reeves, extended it to 2030. Healey did not mention the freeze in his budget speech, but the documents confirm it remains in place.
The freeze means that, as wages rise, more income is dragged into higher tax bands, a phenomenon known as “fiscal drag.” Until 2021, thresholds were typically increased each year in line with inflation.
The Office for Budget Responsibility estimates that had the personal allowance moved up in line with CPI inflation since 2021 and until 2030-31, it would be £4,900 higher, with the higher-rate threshold £20,100 higher. The share of taxpayers paying either the higher or additional rate is projected to rise from 15% in 2021-22 to 24% in 2030-31.
For context, the current thresholds are: a personal allowance of £12,570, basic rate of 20% on income between £12,571 and £50,270, higher rate of 40% on income between £50,271 and £125,140, and additional rate of 45% above that. The personal allowance is reduced for incomes above £100,000, disappearing entirely at £125,140.
Analysis
Why This Matters
- The freeze means many workers will see a larger share of their pay rise consumed by tax, even though headline rates have not changed.
- The OBR projects the number of higher- and additional-rate taxpayers will grow sharply by 2030, affecting take-home pay and potentially household spending.
- The policy is set to continue until 2030, meaning it will remain a factor in budgeting for millions of households for the next several years.
Background
The UK income tax system uses a personal allowance and staggered bands. Until 2021, thresholds were routinely uprated with inflation. The current freeze began under Rishi Sunak in 2021 and has been extended by successive chancellors, including Rachel Reeves last year and now John Healey. The freeze has become a key source of revenue without raising the headline rates of income tax.
Key Perspectives
- Chancellor John Healey: Did not mention the freeze in his budget, but budget documents confirm it remains in place.
- The Office for Budget Responsibility: Estimates the personal allowance would be £4,900 higher and the higher-rate threshold £20,100 higher by 2030-31 if they had moved with inflation; it projects the share of higher and additional rate taxpayers rising from 15% to 24%.
- The then chancellor Rishi Sunak (2021): Announced the initial freeze, from April 2022 until 2026.
- The Conservative government: Later extended the freeze to 2028.
- The then chancellor Rachel Reeves: Announced the extension to 2030 in last year’s budget.
What to Watch
- Any future budget announcement that changes the freeze schedule ahead of 2030.
- Official inflation forecasts, which will affect how much the freeze is estimated to cost or save.
- The actual share of taxpayers falling into higher bands, as reported by HMRC in coming years.
Checked
12 claims in this story checked against 1 source: 8 supported.
Show each claim
- Partly supportedThe headline presents the frozen thresholds as applying across the UK.UK news | The Guardian: “In England, Wales and Northern Ireland the thresholds are the same.”
- Partly supportedThis is the first Labour budget since 2024, and it continues the freeze until 2030.UK news | The Guardian: “Income tax thresholds are set to remain frozen after John Healey’s first budget as chancellor. [...] last year the then Labour chancellor, Rachel Reeves, announced it would continue until 2030.”
- SupportedHealey’s first budget left income tax thresholds frozen for another year.UK news | The Guardian: “Income tax thresholds are set to remain frozen after John Healey’s first budget as chancellor.”
- SupportedThe OBR projects the share of taxpayers paying higher- or additional-rate tax will rise from 15% in 2021-22 to 24% in 2030-31.UK news | The Guardian: “It says the freezes mean the proportion of taxpayers paying either higher or additional rate tax will have increased from 15% in 2021-22 to 24% in 2030-31.”
- Partly supportedThe threshold-freeze policy has been in place since 2021.UK news | The Guardian: “When the then chancellor, Rishi Sunak, delivered his budget that year he announced that thresholds would be frozen from April 2022 until 2026.”
- SupportedRishi Sunak announced a freeze from April 2022 until 2026.UK news | The Guardian: “When the then chancellor, Rishi Sunak, delivered his budget that year he announced that thresholds would be frozen from April 2022 until 2026.”
- SupportedRachel Reeves’s budget last year extended the freeze until 2030.UK news | The Guardian: “The Conservative government extended that freeze until 2028, and last year the then Labour chancellor, Rachel Reeves, announced it would continue until 2030.”
- Partly supportedHealey did not mention the freeze in his budget speech, but the documents show it remains in place.UK news | The Guardian: “Healey did not mention the freeze in his budget, but the documents show it remains in place.”
- SupportedThe freeze means rising wages can push more income into higher tax bands, a phenomenon called fiscal drag.UK news | The Guardian: “Freezing tax thresholds results in “fiscal drag” – a phenomenon where people are dragged into higher tax bands when they get pay rises.”
- SupportedThe OBR estimates that, if the personal allowance had risen with CPI inflation since 2021 through 2030-31, it would be £4,900 higher and the higher-rate threshold £20,100 higher.UK news | The Guardian: “The Office for Budget Responsibility says had the personal allowance moved up in line with CPI inflation since 2021 and until 2030-31, it would be £4,900 higher, with the threshold for the higher rate to kick in £20,100 higher.”
- SupportedThe basic, higher and additional rates are 20%, 40% and 45%, applying to the stated income bands.UK news | The Guardian: “Income between £12,571 to £50,270 is taxed at the basic rate of 20% if it is on earnings. Income between £50,271 to £125,140 is charged at the higher rate of 40%, and anything over £125,140 is taxed at the additional rate of 45%.”
- SupportedThe personal allowance is £12,570, is reduced for income above £100,000 and disappears at £125,140.UK news | The Guardian: “Everyone has a personal allowance of £12,570, and below that income is not taxed. [...] If you earn more than £100,000 once things such as pension contributions are taken into account, your personal allowance is reduced by £1 for every £2 you earn. By the time you earn £125,140 you will get no tax-free personal allowance.”