Workers earning around £48,000 annually will face a more severe impact from Chancellor Rachel Reeves' Budget stealth tax than individuals earning three times that amount, according to a detailed analysis. The findings challenge the government's repeated claims that those with the "broadest shoulders" are bearing the greatest tax burden.
Threshold Freeze Extended Despite Previous Pledges
The Chancellor has announced plans to prolong the freeze on tax thresholds for an additional three years, a controversial move she had previously ruled out. This extension means the freeze, originally implemented by Rishi Sunak in 2022 to address pandemic debts, will now continue until 2031, creating what experts describe as potentially the largest stealth tax in history.
Disproportionate Impact on Middle Incomes
Research conducted by the Institute for Fiscal Studies reveals stark disparities in how the threshold freeze affects different income groups. A worker earning £48,000 per year will pay an additional £603.50 annually by the time the freeze concludes in 2031. In contrast, someone earning £150,000 will face only £393.59 in extra tax.
Even more striking is the comparison with lower earners. An individual on £12,000 annually will pay £220.15 more, representing a far higher proportion of their income than someone earning ten times that amount. The analysis indicates that middle-income professionals, including police officers, senior teachers, and nurses, will be among the hardest hit.
Political Reactions and Accusations
Shadow Chancellor Sir Mel Stride has strongly criticised the measure, stating: "Rachel Reeves is trying to pull the wool over Britain's eyes. She said the wealthiest would contribute the most, but the biggest tax rise in her Budget was a stealth tax which hits middle earners the hardest."
He added: "This isn't economic necessity, it's a choice, with working people's pay packets being raided to fund Labour's decision to increase the benefits bill. Rachel Reeves wants to pretend she is protecting working people, but in reality she is punishing them."
Historical Context and Policy Reversals
The tax threshold freeze was initially introduced as a four-year measure by Rishi Sunak, then extended by two years under Jeremy Hunt. While in opposition, Ms Reeves herself criticised similar moves, likening them to "picking the pockets" of working people.
During her first Budget in 2024, the Chancellor explicitly ruled out further extensions, arguing it would "hurt working people" and violate Labour's manifesto commitment not to raise income tax. However, citing weak economic growth and reversals on welfare reductions, she announced the three-year extension in November's Budget.
Long-Term Consequences
By the conclusion of the nine-year freeze in 2031, the policy will have significantly altered the UK's tax landscape. An estimated 5.2 million additional low earners will have been drawn into the income tax system, while 4.8 million middle earners will find themselves paying the 40p tax rate—a band originally intended only for high-income individuals.
The Treasury has referenced "distributional analysis" published alongside the Budget, suggesting that when all tax and spending measures are considered—including the new "mansion tax"—the top 10% of earners will be most affected. Nevertheless, the IFS research underscores how the threshold freeze alone disproportionately impacts ordinary workers, dragging millions into higher tax brackets through fiscal drag.
This development raises significant questions about the government's taxation strategy and its alignment with stated principles of fairness, particularly as middle-income households continue to face economic pressures from inflation and stagnant wage growth.
