Rachel Reeves Extends Income Tax Threshold Freeze Until 2031

Chancellor Rachel Reeves extended the freeze on income tax thresholds and National Insurance contribution thresholds until 2031 during the 2025 Budget. The personal allowance remains fixed at £12,570, a policy originally introduced by the Conservatives in 2021-22. This measure creates fiscal drag, pulling earners into higher tax brackets as wages rise without corresponding adjustments to thresholds.

The Office for Budget Responsibility forecasts that 4.2 million additional people will enter the income tax net by 2030. This extension is expected to raise approximately £23 billion for the Exchequer by 2030-31, including £8 billion in the 2029/30 period alone. By April 2028, basic-rate employees are projected to pay an additional £140 in annual tax.

Analysis from the Centre for Policy Studies warns that middle-income earners will be significantly impacted; a worker earning £50,000 today could be £505 worse off in real terms by 2030-31. Conversely, the analysis suggests that pensioners and universal credit recipients will see real-terms gains due to the state pension triple lock and inflation-linked benefit increases.

HM Treasury defended the policy by citing reductions in energy bills and increases to the national living wage. Prime Minister Keir Starmer has further promoted the government's economic record, declaring an all-out war on the cost of living. To mitigate the tax burden, HM Revenue and Customs continues to offer reliefs such as the Rent a Room scheme and Maintenance Payments Relief.