UK Freezes Tax Thresholds to 2031, Raising £23 Billion

In her Autumn Budget, UK Chancellor Rachel Reeves extended a freeze on income tax and national insurance thresholds until 2031, a move projected to increase tax burdens for many workers through fiscal drag even as their wages rise with inflation. The decision, announced in November 2024, contrasts with Labour's pre-election pledge not to raise taxes on working people and is expected to generate around 23 billion pounds for the government over the period.

Fiscal drag occurs when frozen tax thresholds push individuals into higher tax bands as nominal incomes grow, effectively raising the amount paid without changing rates. According to analysis by the Centre for Policy Studies, a worker earning 50,000 pounds today could be 505 pounds worse off in real terms by 2030-31, despite their salary rising to an estimated 56,000 pounds based on Office for Budget Responsibility forecasts for wage growth and inflation. Those crossing the higher-rate threshold of 50,270 pounds would face a combined tax rate of up to 42 percent on additional earnings, up from 28 percent.

The analysis paints a different picture for state-supported groups. Pensioners benefiting from the triple lock, which ensures...