While most people expect tax thresholds to rise with the cost of living, Britain’s income tax bands have been stuck in place since 2021 and will remain frozen until at least 2031. This seemingly small policy change quietly creates a massive problem for families across the country, especially those with modest incomes.
Here’s how it works: when your salary grows to keep up with rising prices, you don’t actually get ahead. Instead, you cross invisible tax lines that push you into higher tax brackets. It’s like climbing a ladder where each rung costs more money. The government calls this “fiscal drag,” and it’s surprisingly effective at taking more from your paycheck without anyone noticing.
Consider a family earning £45,000 today. As wages rise over the next few years, they might find themselves suddenly paying the higher 40% tax rate on part of their income. They haven’t gotten richer in real terms, but the tax system treats them as if they have.
Meanwhile, the personal allowance of £12,570 stays frozen, meaning people who previously paid no income tax at all start receiving smaller paychecks.
The numbers tell a sobering story. This threshold freeze raises over £8 billion each year for the government and will push an extra 4.8 million people into higher tax brackets by 2030. For many families, this means less money for groceries, heating bills, and school supplies.
Low and middle-income families face the biggest squeeze because their wages typically rise just enough to cover inflation. Unlike wealthy families who have other ways to manage their finances, working families have few options to avoid these tax increases. They simply watch more of their earnings disappear into government coffers.
The freeze also reduces other benefits, like personal savings allowances, for those pushed into higher brackets. What started as a temporary measure has become a long-term policy that effectively raises taxes without changing tax rates. Similar to how monetary policy adjustments affect different segments of the economy at varying speeds, this fiscal change impacts low and middle-income families more immediately than wealthier households. This represents a significant political shift from the previous autumn stance where the freeze would not be extended. Britain’s overall tax burden is projected to reach a record high of 38% by 2030-31.
For Britain’s poorest families, this silent tax increase comes at the worst possible time, when every pound already stretches thinner than before.
