British households have been hit with a £12.41 billion stealth tax raid on their incomes, according to newly released figures from HMRC.
The data reveal that frozen income tax thresholds have handed the Treasury a massive windfall, helping it collect £154.18 billion in revenue between April and September, up from £141.77 billion in the same period last year.
The policy, introduced under the Conservatives, locked income tax thresholds until 2027 to 2028. However, Chancellor Rachel Reeves is now widely expected to extend the freeze until 2029 to 2030 when she delivers her autumn Budget next month.
Reeves faces a £50 billion fiscal shortfall, but has publicly ruled out raising headline tax rates, including income tax, National Insurance, VAT, or corporation tax. She has insisted she will not breach Labour’s fiscal rules. Extending the threshold freeze would technically keep that promise, while allowing the Treasury to quietly raise billions more.
According to the Institute for Fiscal Studies (IFS), prolonging the freeze could generate an extra £10.4 billion a year in tax receipts. However, critics warn that the move would leave ordinary workers paying far more by the end of the decade.
HMRC estimates show that the policy pushed an additional 520,000 taxpayers into the higher rate 40p tax bracket last year, a direct result of so-called “fiscal drag,” where rising wages pull more earners into higher tax bands even though the thresholds remain unchanged.
Speaking to the Telegraph, Rachael Griffin, of wealth management firm Quilter, said the system has left workers paying over the odds.
“Pay As You Earn (PAYE) income tax and National Insurance contributions remain artificially inflated by the freeze to tax thresholds,” she said.
“This doesn’t point to a roaring economy but a sign of a Treasury increasingly reliant on extracting more from the same taxpayers.
With fiscal drag proving such a dependable source of income, the Chancellor may now be tempted to delay any unfreezing of thresholds, despite the political awkwardness that would bring.
Reversing the freeze was positioned as a signature move in her first Budget, but maintaining it would quietly preserve billions in extra tax revenue.”
Reeves has insisted she will not break her fiscal rules, which prevent the Government from borrowing to fund day-to-day spending. She argues that maintaining market stability and investor confidence is her top priority.
The current freeze was first implemented by former Chancellor Jeremy Hunt in 2022, when he extended it to 2028 in an effort to shore up the public finances after Covid. Since then, millions have felt the squeeze as higher earnings have failed to keep pace with rising tax bills.
Sarah Coles, of Hargreaves Lansdown, warned that workers are far from done paying the price.
“The fact that this freeze is in place until 2028 means it’s not over yet,” she said.
“Speculation about possible income tax changes in the autumn Budget has grown over the past few weeks. There’s every chance the thresholds could be frozen for longer, as this stealth tax fits within the Government’s promise not to leave working people worse off, because it’s a tax on pay rises. At the same time, it’s clearly an incredible money-spinner.”
As the Treasury grows ever more dependent on this silent form of taxation, many households are bracing for more of the same, higher take-home pay on paper, but less money left in their pockets.
