Chancellor Rachel Reeves has confirmed a freeze in income tax thresholds will be extended, forming part of a wider £26bn package of tax increases, while also announcing a raft of other measures that are set to hit UK household finances.
More than 1.7 million people will face paying more income tax after the chancellor froze thresholds, according to the Office for Budget Responsibility (OBR). Some 780,000 more people will be pulled into paying the tax for the first time while the freeze will create 920,000 more higher-rate tax payers and 4,000 more additional-rate income tax payers as people are shifted into higher bands as their earnings increase.
Estimates from Quilter show that, assuming 3% inflation and 5% annual wage growth, taxpayers at every income level will face rising income tax and national insurance liabilities through 2028/29, 2029/30 and 2030/31. Because thresholds remain fixed in cash terms, wage growth alone is enough to push workers into higher effective tax bands.
Under the projections, someone earning £25,000 in 2030/31 will pay £234 more in income tax than in 2028/29, and an additional £93 in national insurance. While the cash increases are modest at lower income levels, they rise sharply among middle and higher earning households.
A worker earning £50,000 would face an extra £1,166 in income tax by 2030/31, alongside an increase of £186 in annual national insurance contributions. The pattern is similar for those on £75,000.
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The steepest increases fall on six figure earners. By 2030/31, an individual on £100,000 would pay £2,648 more in income tax compared with 2028/29, nearly three times the increase for someone on £50,000. National insurance contributions for this group also rise steadily over the same period, from £60 in 2028/29 to £186 by 2030/31.
Even earners making £125,000 and £150,000, where the taper of the personal allowance already creates very high marginal tax rates, see further income tax increases of £1,279 over the period, plus identical rises in national insurance to those seen at £100,000.
Rachael Griffin, tax and financial planning expert at Quilter, said: “For workers across the spectrum, the impact is sharp. Pay growth that would once have felt like genuine financial progress now pushes people into higher rates of tax far earlier than expected. Had the £12,570 personal allowance risen in line with inflation from when it was first frozen in 2021 until now, it would be worth £15,714. Had the £50,270 higher rate threshold done the same, it would be worth £62,845 today.”
She added: “The pressure is felt most acutely by those around the higher rate threshold and those on the cusp of losing their personal allowance at £100,000, where the effective marginal rate reaches 60%.
“Extending the freeze compounds these pressures for years to come. When first introduced in 2021 the OBR estimated the freeze was expected to raise £8bn a year by 2025/26 bringing 1.3 million more into paying tax and 1 million more into paying higher rate. When extended to 2027/28, it was expected to raise £26bn a year by 2027-28, bring 3.2 million more into paying tax and 2.6 million more into paying higher rate.
“The policy raises substantial revenue without increasing headline rates, but the cost is transparency. Households will feel the squeeze long before they understand where it came from.”
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The OBR said that had the personal allowance risen with CPI inflation since 2021 and through to 2030/31, it would be £4,900 higher, with the higher-rate threshold £20,100 higher.
The proportion of taxpayers paying higher or additional rate tax is forecast to rise from 15% in 2021–22 to 24% in 2030–31.
Hargreaves Lansdown calculated that someone earning £50,000 this year will pay £8,165 more in tax between 2020 and 2031 because of the freeze.
“It’s not just the tax on earnings that’s affected,” said Sarah Coles, personal finance columnist at Yahoo Finance UK and head of personal finance at Hargreaves Lansdown, said. “When you start paying higher rate tax, your personal savings allowance shrinks, from £1,000 for basic rate taxpayers to £500 for higher rate taxpayers, and disappears altogether for additional rate taxpayers.
“You also pay a higher rate of capital gains tax when you cross into paying higher rate tax, and your dividend tax rate rises as you cross each income band. It means everyone, whatever their income, needs to consider the steps they can take to protect themselves.”
Ben May, head of payroll product compliance at ADP, warned of an additional squeeze beginning in April 2029. “Middle earners will be caught in a double squeeze from April 2029. While frozen tax thresholds could reduce their take-home pay following pay increases, employers in four years time will face additional costs from the new £2,000 cap on salary sacrifice pension contributions.
“From April 2029, any pension contributions made through salary sacrifice above £2,000 will attract both employee and employer national insurance contributions (NICs).
“For an employee earning £60,000 annually who sacrifices £6,000 into their pension, employers will face an additional £900 in NICs on that excess. Across a workforce, that adds up quickly. The devil will be in the detail on this one.”
Households across the UK will see sharply differing outcomes from the government’s autumn budget, with new tax, benefit, energy and transport policies combining to deliver gains for some and losses for others, according to analysis by think-tank the Resolution Foundation.
The impact varies widely depending on income level, employment status, region and mode of transport. While some low income households gain materially from changes to tax and benefit policy, many working households in the middle of the income distribution face net losses once transport and energy measures are factored in. All figures are expressed in 2025–26 prices.
The largest cash gain is recorded for a single parent with three children earning the national living wage and living in Wales. This household sees a £4,750 rise from tax and benefit measures, alongside smaller uplifts from energy and transport policies, resulting in a total annual gain of £4,960. A single adult who is unemployed also sees a modest increase of £280, largely driven by benefit changes.
Households with part time workers also see small net gains in some circumstances. A single parent with one child working part time at the national living wage and driving an electric vehicle gains £490 overall, despite a £270 reduction linked to transport policy.
The picture is very different for working households on middle incomes. A couple with two children in the South East, both in low to median wage jobs, faces a £135 reduction from tax and benefit measures. Even after gains from energy and rail policies, their net annual income rises by just £235. A single adult working full time at the national living wage, living in the South West and driving a petrol car, sees an almost flat outcome, at £90 rise.
Older households fare better on average. A single pensioner with typical private pension income gains £215, while a pensioner couple in Yorkshire and the Humber sees a more modest uplift of £65, after a £100 reduction linked to tax and benefit policy is offset by increases from energy and transport measures.
Read more: Salary sacrifice faces £2k cap but tax-free pension cash stays in budget
Higher earning working households stand to lose the most. A couple without children, both earning median to high wages and living in the South West, experience a net annual loss of £70, even after gains from energy and transport policy. The steepest fall occurs for a single adult in a high paid job living in London and driving an electric vehicle, whose income falls by £295 once all policy changes are combined.
The IFS said the budget relies on “near-heroic restraint in an election year” and a “back-loaded set of tax rises that almost entirely delay the pain”.
Helen Miller, IFS director, said: “The fiscal forecasts are predicated on spending plans that would involve near-heroic restraint in an election year, and a back-loaded set of tax rises that almost entirely delay the pain. It’s reminiscent of the fiscal fictions of recent years. I hope this is a government able to deliver on it’s plans. But I have my doubts.”
The IFS projects that basic-rate taxpayers will pay £220 more per year by 2029, while higher-rate taxpayers will pay £600 more.
Reeves placed a £15bn increase in personal taxes at the centre of her revenue strategy, driven by an extended three-year freeze in thresholds. One in four workers will be paying the higher income tax rate by 2030.
Read more: What is the salary sacrifice scheme and why has Reeves changed its rules?
The National Institute of Economic and Social Research (NIESR) said those in the bottom 30% of earners will bear the brunt of the freeze, which pulls even National Minimum Wage earners into higher bands. NIESR’s analysis shows disposable income falling by just over 2.5% for the bottom decile and almost 5% for the second decile, with no effect on the top two deciles.
The Resolution Foundation warned that the budget “locks in a high-tax, high-debt steady state” and that departmental cuts pencilled in for 2029–30 amount to £6.4bn. It noted that nearly three-quarters of the £77bn of extra tax planned over the next five years will fall after April 2029, including £26bn in 2029–30 alone.
In a combative round of interviews, Reeves refused to apologise for the £26bn tax rise. Responding to claims she had broken the spirit of Labour’s manifesto, she told BBC Radio 4’s Today programme: “I believe that they were the fair and necessary choices. I have to operate within the forecasts that I’m presented with.
“Of course I could have made different decisions, but I believe they were the right decisions so we could reduce NHS waiting lists and so yesterday I was able to announce a package of measures to lift kids out of poverty and also to get the cost of living down for families.”
Asked whether a soaring welfare bill would be her legacy, Reeves said: “Lots of people have tried to write me off over the last 16 months and you’re not going to write my obituary today.”
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