New Prime Minister Andy Burnham has been warned that more than one million extra Britons are expected to be dragged into paying more tax this year due to the continuing freeze on tax allowances, according to a tax watchdog.
Fiscal drag impact
An additional 500,000 people will start paying basic-rate tax, while 410,000 more will be pushed into the 40% higher-rate band and 70,000 more into the additional-rate band during 2026-27, the TaxPayers' Alliance (TPA) estimates. The figures highlight the ongoing impact of fiscal drag, where frozen tax thresholds pull more people into paying tax or higher rates as wages rise.
The income tax personal allowance is frozen at £12,570, with the 40% higher-rate threshold fixed at £50,270 and the additional rate applying above £125,140. The freeze was first introduced by former Chancellor Rishi Sunak in April 2022 and originally due to end in 2026, but has been extended until April 2031.
Stealth tax burden
The TPA estimates the average taxpayer will pay £640 more in income tax than in 2024-25, and £1,040 more than in 2023-24. Prime Minister Andy Burnham has previously described the freeze in the personal allowance as one of the biggest issues raised by voters during the Makerfield by-election campaign before entering Downing Street.
Recent HMRC data shows millions more taxpayers are expected to be caught by higher rates over the next few years as earnings rise while thresholds remain static. The stealth tax is also increasingly hitting pensioners, with the number of over-65s paying income tax forecast to jump by 630,000 in a single year, taking the total to 10.2 million.
Regional and top-earner impact
Overall income tax receipts are expected to reach £347 billion in 2026-27, an increase of £43 billion compared with 2024-25. The burden falls particularly heavily in London and the South East, where salaries are generally higher. In London, 25.9% of taxpayers are expected to pay the higher rate, compared with 14.4% in the North East. In the North West – Mr Burnham's home region – 16.2% of taxpayers are forecast to be higher-rate taxpayers.
The research also highlights the concentration of the tax burden: the top 1% of income taxpayers are expected to earn 12.8% of all income but pay 26.6% of all income tax, while higher and additional-rate taxpayers together will account for almost 73% of all income tax receipts.
Reactions
John O'Connell, chief executive of the TaxPayers' Alliance, said: "A million more Brits are being caught in the taxman's net by stealth. Freezing thresholds lets ministers rake in billions without admitting they have raised taxes, hitting workers, pensioners and families across the country. If Andy Burnham really wants to give hard-working taxpayers breathing space, he should end fiscal drag and unfreeze tax thresholds."
A HM Treasury spokesperson said: "We are protecting payslips by keeping our promise not to raise Income Tax, National Insurance or VAT."
