Rachel Reeves’s Budget ‘Stealth Tax’ Raid Could Cost Workers £285 Annually
Chancellor Rachel Reeves is facing criticism over what many are calling a “stealth tax” that is expected to hit millions of UK workers. The issue centers on the potential extension of frozen income tax thresholds, which could see average earners paying £285 more a year by the end of the decade.
What Is the ‘Stealth Tax’?
The term refers to the current freeze on income tax thresholds—specifically, the personal allowance and the higher-rate threshold. These thresholds determine how much income a person can earn before paying income tax and how much of their income is taxed at higher rates.
Originally set by Conservative governments, the freeze has been in place and is due to last until April 2028. The controversy stems from proposals to extend that freeze further, potentially until 2030.
How Much Will It Cost Workers?
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On average, workers could lose £285 per year if the freeze continues.
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In higher-income areas like London, that number could be higher—roughly £350 per year for some.
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In the South East, average additional payments might be around £320 annually.
How Many People Will Be Affected?
More than 1.3 million taxpayers are expected to be adversely affected if the freeze is extended. Many will be pushed into higher tax brackets without an actual increase in income—essentially trapped into paying more due to inflation and earnings growth.
Why the Freeze Exists
The freeze was introduced to help manage rising public spending and to plug gaps in public finances. By not increasing thresholds in line with inflation, the Treasury will collect more revenue, especially as wages rise.
Controversy and Criticism
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Critics argue this move breaks Labour’s promise not to raise taxes on working households or reduce take-home pay significantly.
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Supporters say it’s a means to raise revenue without overtly increasing tax rates. Still, many see it as unfair, especially for those whose wages just keep pace with inflation.
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Regions with higher average earnings will feel the effects more sharply.
What Happens Next
The new measures are expected to feature in the Autumn Budget. Reeves will need to decide whether to extend the freeze beyond 2028. If so, the Treasury estimates raising over £10 billion from this freeze extension.
FAQs
Q1: What is the income tax threshold freeze?
It means that the levels at which income starts being taxed (personal allowance) and income moves into higher tax bands (higher-rate threshold) stay the same instead of rising with inflation or wages.
Q2: Why do people call it a “stealth tax”?
Because, while the tax rates don’t go up, many people will end up paying more simply because their income increases or inflation rises, pushing them into taxed bands without a formal rate change.
Q3: Who will be most affected by this?
Workers in areas with higher wages (like London, South East) and those whose income increases over time will be more affected. Around 1.3 million taxpayers are predicted to feel the impact.
Q4: How much more will the government raise from this policy?
Extending the freeze until 2030 could bring in over £10 billion for the Treasury.
Q5: Can this policy break existing promises?
Yes. Labour had pledged not to raise taxes on working people and protect take-home pay. Critics argue extending this freeze undermines that promise.
