Full Breakdown
Income-Tax Threshold Freeze Extended to 2031 and New Pension Tax Allowance
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In this breakdown
01
Core Event: Income-Tax Thresholds Remain Frozen Until 2031
The 2026 UK Budget leaves personal-allowance and all income-tax thresholds unchanged. The personal allowance stays at £12,570 and the 40 % higher-rate line at £50,271 through April 2031. National-Insurance thresholds are also frozen until 2030-31, and the 20 %, 40 % and 45 % rates are untouched. No rate change occurred on October 28 2026.
02
Background & Context
Before 2021, thresholds were indexed to inflation each year. Rishi Sunak first froze them from April 2022; the Conservatives later extended the freeze to 2028. Labour Chancellor Rachel Reeves pushed the freeze to 2031 in the 2025 budget, and the new Chancellor John Healey has kept the thresholds exactly where he inherited them.
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Data & Statistics
- The freeze is projected to generate £58 billion a year by 2030-31.
- By 2031 an additional 6.8 million people are expected to pay income tax who otherwise would not.
- OBR estimates the personal allowance will be £4,900 lower and the higher-rate threshold £20,100 lower than with CPI uprating by 2030-31.
- The share of taxpayers in the higher or additional rate is forecast to rise from 15 % (2021-22) to 24 % (2030-31).
- For a £25,000 earner the freeze costs roughly £700 this year and £5,900 by 2030 if wages keep pace with inflation; a £50,000 earner loses about £8,100 by 2030.
- The new pension tax allowance shields about £467 of income, saving up to £94 per year, tapering by £1 for every £3 of income above the threshold and ending in 2029-30.
- OBR headroom against fiscal rules is quoted at £24 billion, the Resolution Foundation puts it at £12 billion and the Institute for Fiscal Studies at ?£20 billion.
- Polling by Opinium shows 65 % of households earning over £100,000 feel better off, versus 37 % of those earning up to £20,000.
04
Official Statements & Responses
- Chancellor John Healey announced the pension tax allowance, stating that pensioners with income up to the full new State Pension will not pay income tax in the current Parliament.
- The Office for Budget Responsibility projected the long-term fiscal drag effects and quantified the expected shortfall in allowances.
- Prime Minister Andy Burnham highlighted public frustration with the frozen personal allowance during his campaign for the Makerfield by-election.
- The Treasury indicated that after April 2031 thresholds will again be indexed to inflation, though the exact uplift will depend on wage growth at that time.
05
Criticism & Opposition
- Jenny Holt, director at Standard Life, warned that pay rises may not translate into higher take-home income for workers, complicating budgeting for day-to-day costs.
- Dan Neidle of Tax Policy Associates argued that the National-Insurance cut would have a larger net benefit—up to £265 a year on a median wage—than the frozen thresholds.
- Antonia Medlicott, founder of Investing Insiders, suggested that a transparent income-tax rise would be preferable to multiple hidden “stealth” grabs.
- Baroness Ros Altmann, former pensions minister, raised concerns that pensioners on the pre-2016 system might not receive the same relief, potentially creating a two-tier outcome.
06
Conflicting Reports & Gaps
- Headroom estimates differ: the OBR cites £24 billion, the Resolution Foundation £12 billion, and the Institute for Fiscal Studies ?£20 billion. No consensus is provided on the exact fiscal space available.
- The precise mechanism of the new pension tax allowance—how it will be administered, the claw-back schedule, and its interaction with additional pension income—remains unspecified, leaving pensioners uncertain about future tax liability.