UK Tax Threshold Freeze Drives Millions into Higher Income Tax Brackets

In 2023-24, three million income-taxpayers entered a tax band despite wages only keeping pace with inflation, reflecting frozen thresholds.

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The freeze, introduced by Conservatives in 2021 and continued by Labour, leaves 40p higher-rate threshold at £50,270, 45p additional-rate threshold at £125,150, and withdrawal at £100,000.

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Data analysed by Evelyn Partners show 324,000 additional-rate and 654,000 higher-rate taxpayers in 2023-24, 2.17 million payers and 18.1 % of taxpayers paying the 40p rate or higher; Treasury estimates thresholds could raise £55 billion by 2031.

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Analysts warn that earners will become higher-rate taxpayers by 2030, a status previously limited to high earners. Loss of income has led some workers to limit earnings, e.g., by increasing pension contributions or refusing higher-pay. David Little of Evelyn Partners says many earners just below £100,000 and £125,150 are purposefully avoiding higher earnings because gain is marginal.

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David Little notes earnings suppression.

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Rachel Reeves argues the freeze avoids borrowing, cuts, or breaching Labour’s manifesto promise not to raise tax rates. Treasury spokesman noted the policy was inherited and highlighted measures such as raising the national minimum wage, cutting energy bills by £150, freezing prescription charges, fuel duty and rail fares, while reaffirming pledge not to raise income-tax, insurance or VAT.

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The sources provide revenue projections but lack data on how many workers have reduced earnings, the distribution of affected taxpayers, and no alternative estimates of higher-rate entrants are offered. The thresholds are scheduled to rise in 2031, after which £55 billion revenue from the stealth tax would cease, prompting reassessment in budgets.

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• “David Little of Evelyn Partners said: “In real terms, everyday middle earners will be higher rate taxpayers by 2030, as opposed to the situation a decade or two ago when this band was confined to individuals regarded as ‘high earners’.” — David Little, Evelyn Partners

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• “He said: “Many earners just below the £100,000 and £125,150 income levels are purposefully trying not to increase their earnings because they don’t think the extra work is worth the meagre increase in post-tax income – especially for those who also lose tax-relieved childcare above £100,000.” — David Little, Evelyn Partners

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• “That cannot be good for economic growth or productivity in the UK.” — David Little, Evelyn Partners

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• “More people are paying higher rates of tax because thresholds have been frozen while wages rise – a policy we inherited. At the last Budget we acted to ease pressures on working people by increasing the national minimum wage, taking £150 off energy bills, and freezing prescription charges, fuel duty and rail fares. And we are keeping our promise not to raise the basic, higher or additional rates of income tax, employee national insurance or VAT.” — Treasury spokesman

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