Frozen tax thresholds are set to cost average UK earners £234 each from April, as the tax-free Personal Allowance remains at £12,570.
The allowance has been held at this level again, following former Chancellor Rachel Reeves' plans to freeze it until 2031. A petition to raise the threshold, which dictates how much a person can earn before paying tax, has reached more than 80,000 signatures after being shared by the Express.
Chancellor declines to raise bands
Chancellor John Healey declined to raise the bands at all in his Autumn Budget 2026, despite calls for more tax headroom during the cost of living crisis. The allowance has been frozen since 2021, and Rachel Reeves confirmed in the last Budget that it will continue to be frozen until 2031 at the earliest, meaning it will have been stuck at the same level for 10 years.
The threshold level of £12,500 in 2019 is worth approximately £16,215 in 2026 accounting for inflation. Inflation gradually increases wages as employers hand pay rises or raise wages to maintain the value of a salary as inflation erodes buying power. This year, wage growth is at 3.9%, while inflation sits at 3.5%.
Impact on average earnings
The downside is that more households get dragged into paying more tax, including exceeding the £12,570 threshold and pushing other earners up into the higher 40% tax band at £50,270 or the top rate of tax at £125,140.
Average earnings in the UK currently sit at £39,000. For a worker on this salary, the freeze on thresholds will cost £234 by 2030 compared to inflation-based rises in the tax bands. If the Personal Allowance at £12,570 had been allowed to increase with inflation, it would reach £13,739 according to the Institute for Fiscal Studies, saving £234 in tax on a £39,000 wage, which itself would rise to £42,627 with inflation.
Think tank criticism
Budget measures to help ease cost of living pressures were "terribly badly targeted" in the face of "really catastrophic forecasts for living standards", a leading economic think tank has said. The Resolution Foundation said "the outlook from this point on is dire", with a typical household's income expected to drop by 3% – or £1,050 – between this year and 2028-29.
Ruth Curtice, chief executive of the think tank that has been influential upon Labour's thinking, said it was "a relatively small Budget and arguably one that did not live up to the scale of the challenges that Britain faces". She told a Thursday briefing that "in the face of what are really catastrophic forecasts for living standards", Chancellor John Healey had taken "an approach to cost of living support that may be popular but is far from effective".
Greg Thwaites, the foundation's interim chief economist, said "the next few years are going to be really bad, and actually incomes are going to fall" cumulatively by about 3% by the end of this Parliament and then flatline. He said the 2020s had been a "terrible decade for living standards" and "this is why it's all the more important for the Government to target what it's doing".
