What is in the Budget 2025? Leak shows £8.3bn income tax raid for working Brits | Personal Finance | Finance
It has been confirmed that the freeze on income tax thresholds will be extended for another two years, taking it through to April 2030.
The personal allowance, higher-rate threshold and additional-rate threshold will remain fixed in cash terms, dragging millions more into paying 20p, 40p and even 45p tax as wages rise.
As a result, the personal allowance before income tax is paid will remain at £12,570 regardless of inflation or wage growth. The higher-rate 40% threshold will be held at £50,270, and the additional-rate threshold for 45% at £125,140.
The number of income taxpayers is expected to rise by almost 1 million – 960,000 – to reach 42.1 million by 2029/30. Significantly, many pensioners will pay tax for the first time as their state pension and modest private pensions exceed the personal allowance.
The OBR said the freeze in tax thresholds would result in 780,000 more basic-rate, 920,000 more higher-rate and 4,000 more additional-rate income tax payers in 2029/30, and estimated it will raise around £7.6 billion in 2029/30.
Jason Hollands, managing director at wealth management firm Evelyn Partners, said: «This is a massive income tax rise by stealth. The power of this policy to increase the income tax and National Insurance burden over the years is really quite eye-watering.
«At the start of the century, only one in ten taxpayers were subject to higher rate tax. However, we are now in a position where a fifth of taxpayers are paying the two highest rates of tax, which makes a mockery of the idea that these quite onerous marginal rates should be reserved for the nation’s “high earners”. The numbers exposed to the highest rates of tax will soar to nearly a quarter by 2030»
“Tax rates haven’t risen, but many people will be paying more tax than ever,” says Frances Li, Founder & Director of Biscuit Recruitment.
“The threshold freeze has already acted as an invisible pay cut, and now that it’s been extended to 2030, it could discourage more workers from moving jobs or seeking promotion..”
“Fiscal drag doesn’t just affect individuals — it affects the economy,” she explains. “When people delay promotions or stay in roles longer than planned, employers struggle to hire, sectors struggle to grow, and innovation slows. Skilled candidates are becoming more hesitant, and that’s creating friction across the talent pipeline.”
“We’re hearing more professionals ask: What’s the point of progressing if most of it goes to tax? That hesitation is becoming common, especially among skilled workers approaching the next tax bracket,” Frances says.
The move marks a sharp break with Reeves’s pledge in her first Budget in 2024, when she promised to resume uprating thresholds in line with inflation.Critics say today’s extension is a stealth tax hike that will hit ordinary workers and pensioners alike.
The freeze was first introduced by Conservative chancellor Rishi Sunak in 2021 and later extended by Jeremy Hunt through to 2028.The Institute for Fiscal Studies (IFS) estimates the moves could raise £8-9 billion a year by 2029/30.
This is mainly because tax bands are not rising while wages continue to grow, which means more people will be pulled into the tax net in what is known as fiscal drag.Today’s decision is likely to provoke a political storm.
While Ms Reeves argues it is necessary to protect public services and manage debt, critics are already calling it a stealth raid on working people and pensioners alike.
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