Millions of employees, pensioners and savers are facing an escalating “stealth tax” of £700 in the coming financial year, analysis reveals. The personal allowance before income tax kicks in has been frozen at £12,570, while the higher-rate threshold remains at £50,270. Had these figures risen with inflation, the basic-rate threshold would be around £18,500 today.
The prolonged freeze on tax bands, initially introduced by the Conservatives in 2021, has been extended through to 2031 by Labour. Charlene Young, senior pensions and savings expert at AJ Bell, described the policy as an extended “tax raid” impacting virtually every taxpayer.
Basic-rate taxpayers could be paying up to £700.36 more in tax during 2026/27 due to the frozen personal allowance. By 2030/31, that extra burden is projected to climb to around £960, subject to wage growth and inflation. Higher-rate taxpayers face up to £3,500 more next year as a result of the freeze.
The policy relies on “fiscal drag” – thresholds remain static while earnings increase, dragging more people into tax and pushing others into higher brackets. Originally expected to raise £8bn yearly, the freeze is now forecast to generate over £50bn annually by 2030/31.
Latest estimates indicate more than 6 million additional people will be paying income tax by 2030/31, while around 4.8 million more will be forced into the higher-rate bracket. Dividend investors have been particularly hard hit due to frozen thresholds, reduced allowances, and steeper tax rates.
