Chancellor John Healey will deliver his first Budget on October 28, 2026, with the £12,570 personal tax allowance threshold having remained frozen since 2021.
Fiscal drag concerns
Some argue that the freeze has created fiscal drag, pulling workers into higher tax brackets as wages rise with inflation while the tax-free allowance stays static. Campaigners are calling for increases to £15,000 or £18,000 to ease the burden on struggling families.
The Bank of England's Prudential Regulation Authority has launched a consultation on automatically indexing 128 regulatory thresholds to economic growth, warning that frozen limits become "restrictive barriers to growth".
Expert warnings
Tony Redondo of Cosmos Currency Exchange said: "Fixed thresholds are admitted to be a barrier to growth, yet frozen income tax bands are weaponised to raise revenue through fiscal drag."
Financial advisers warn that workers receiving inflation-matching pay rises face stealth tax hikes, with millions pushed into tax rates originally intended for higher earners.
Experts note that frozen thresholds are forcing workers to use pension contributions and salary sacrifice schemes to avoid tax cliff edges, distorting career and remuneration decisions.
