The Bank of England's Prudential Regulation Authority (PRA) has opened a consultation on letting 128 of its regulatory thresholds rise automatically with the economy, warning that out-of-date thresholds can become “restrictive barriers to growth”. The move has reignited debate over the frozen personal tax allowance of £12,570, which has not changed since 2021 and is currently planned to stay frozen until 2031.
Chancellor John Healey will present his first Budget on Wednesday, October 28, 2026, and the tax-free allowance is under scrutiny amid ongoing cost of living pressures. Campaigns and petitions have proposed raising the threshold to figures such as £15,000 and £18,000, arguing that the freeze creates fiscal drag, drawing people into paying tax or a higher rate of tax as salaries increase over time while the allowance does not.
PRA consultation sparks criticism of frozen tax bands
Tony Redondo, founder of Newquay-based Cosmos Currency Exchange, said: "The PRA's proposal to index regulatory thresholds to nominal GDP exposes a glaring contradiction: fixed thresholds are admitted to be a barrier to growth, yet frozen income tax bands are weaponised to raise revenue through fiscal drag. Capping the basic and higher rate bands until 2031 means workers on inflation-matching pay rises face stealth tax hikes, eroding purchasing power, creating brutal marginal rate traps, notably the effective 60% between £100,000 and £125,140 and destroying incentive."
Redondo added: "Ending the freeze at the October Budget would restore neutrality and the incentive to work. No wonder clients are piling into salary sacrifice, funnelling bonuses and pay rises into pensions and EV schemes to cut adjusted net income and dodge the cliffs. Here's a novel idea: index MPs' pay rises to per capita GDP growth. If that doesn't concentrate minds, nothing will."
Advisers call for thresholds to keep pace with economy
Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, said: “If frozen thresholds can become a barrier to growth for businesses, why should we pretend they don't distort behaviour for individuals? Freezing income-tax thresholds is effectively a tax rise by stealth."
Prendergast added: "Someone can receive a pay rise that does little more than keep pace with inflation, yet find more of their income pushed into higher tax bands. Over time, that brings millions more people into tax rates that were originally intended for higher earners." He noted that pension contributions and salary sacrifice are increasingly considered as ways of managing adjusted net income, particularly around important tax thresholds, but said people shouldn't have to make career and remuneration decisions simply because tax thresholds haven't kept pace with the economy.
Nouran Moustafa, practice principal and Independent Financial Advisor at Roxton Wealth, said: "There is an obvious irony in the PRA warning that frozen thresholds can become restrictive while millions of workers are experiencing exactly that through the tax system. A salary increase that merely keeps pace with inflation can push somebody into a higher tax band even though they are no richer in real terms."
Moustafa added that freezing thresholds raises substantial revenue but makes the tax system progressively more distortive. She said pension contributions can reduce adjusted net income and salary sacrifice can reduce taxable pay, but stressed that nobody should contribute to a pension purely to dodge a tax threshold: "You are exchanging money today for money later, so liquidity, allowances and wider goals still matter. Frozen thresholds do not freeze people's financial lives."
