Income Tax Threshold Freeze Costs UK Taxpayers £58bn by 2031
Published on · Source: bbc.co.uk
AI Summary
Summarized by AI from the source belowIncome tax thresholds in the UK have been frozen by successive chancellors, withholding expected rises for inflation. The Office for Budget Responsibility (OBR) projects this freeze will generate an additional £58 billion in tax revenue by 2030-31. This policy has increased tax liabilities for those earning above the personal allowance threshold of £12,570, with the amount of extra money raised growing steadily each year.
The freeze affects individuals earning above the threshold, including about 6.8 million more people who will be paying tax by 2031 due to the lack of threshold adjustments. Although wages have increased with inflation, the thresholds have not, meaning more income is taxed at the basic rate of 20%. The personal allowance and tax bands are due to start rising again with inflation after 2031 according to OBR projections.
Pensioners are also impacted, as the state pension is currently just below the personal allowance threshold. However, the government will introduce a separate Pension Tax Allowance to protect low-income pensioners from paying income tax on income up to the new state pension level of £13,036. The freeze is sometimes referred to as a stealth tax because it quietly increases the tax burden without raising headline rates. This matters for taxpayers because it directly reduces take-home pay through higher effective tax rates until thresholds rise again after 2031.
Informational only, not financial advice. Content is AI-generated and may contain errors. How this works.
Our take
Opinion from the Newsstocks AI desk, not investment adviceIn our view, the policy of freezing tax thresholds acts as a steady revenue booster for the government but increases individual tax burdens. The scheduled rise in thresholds only after 2031 means taxpayers will continue facing higher effective taxes for several more years. Any change to accelerate threshold increases would reduce tax revenue but help taxpayers keep more of their income.
Key numbers
- Extra tax revenue by 2030-31
- £58bn
- Personal allowance threshold
- £12,570
- People paying tax due to freeze by 2031
- 6.8 million
- State pension rise triggering pensioner tax
- £13,036
What could hurt
- The frozen thresholds increase tax burdens, reducing take-home pay for millions of workers.
- 6.8 million additional people will pay income tax by 2031 due to the freeze.
The background
Freezing income tax thresholds means tax brackets do not adjust for inflation, effectively increasing taxes over time. This results in taxpayers paying more tax even if their real income remains the same.
Questions readers ask
Why are UK income tax thresholds frozen?
Successive chancellors froze income tax thresholds to raise additional revenue without raising headline tax rates, resulting in higher taxes through bracket creep.
How much extra tax revenue will the threshold freeze generate by 2031?
The freeze is projected to raise an extra £58 billion in tax revenue by 2030-31 according to the Office for Budget Responsibility.
Who will be affected by the frozen income tax thresholds?
Anyone earning above the personal allowance threshold of £12,570 is affected, including about 6.8 million more people who will pay tax by 2031 due to the freeze.
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