YOU COULD PAY MORE TAX ON A RISING SALARY BECAUSE TAX THRESHOLDS ARE FROZEN UNTIL 2031

YOU COULD PAY MORE TAX ON A RISING SALARY BECAUSE TAX THRESHOLDS ARE FROZEN UNTIL 2031
Many workers in the United Kingdom may find themselves paying more tax even if their salary goes up only modestly, after Chancellor Rachel Reeves confirmed in the Autumn Budget 2025 that income tax and National Insurance thresholds will remain frozen in cash terms until April 2031. This change designed to raise government revenue means that as wages rise with inflation or promotions, a larger slice of earnings will be taxed at higher rates, under a phenomenon known as “fiscal drag.”
Traditionally, key tax thresholds including the income tax personal allowance (the amount you can earn before paying income tax) and the income tax band limits were increased yearly in line with inflation to protect earnings in real terms.
Under the Autumn Budget 2025, the government extended the freeze on those thresholds beyond their previous end date (April 2028) and kept them at their 2022-23 levels until April 2031. That includes the personal allowance at £12,570, the higher rate threshold at £50,270, and the additional rate threshold at £125,140.
National Insurance contribution (NIC) thresholds will also remain at current levels until 2031, compounding the effect on take-home pay. When thresholds do not rise with inflation or wage growth, the same pay rise can push more of your income into tax-paying bands even if you haven’t moved up a formal band. This is the core of fiscal drag. As wages increase over time, people can find that:
More income becomes taxable because the tax-free allowance stays fixed, and Larger portions are taxed at higher rates (from 20 % to 40 %, and from 40 % to 45 %).
Independent forecasters warn the freeze could boost revenue by billions with an estimated £7.6 billion in extra income tax revenue alone by 2029-30, and revenues rising further when combined with NICs. Workers whose salaries rise only in line with inflation could pay more income tax in real terms than they would have if thresholds had increased normally
Someone earning just above the personal allowance could start paying tax sooner; A worker approaching the higher-rate threshold could hit the 40 % tax band sooner than expected because the threshold stays fixed even as wages grow.
Analysis shows that millions of taxpayers will be affected as the freeze continues with significant numbers being “dragged into” paying more tax or into higher bands by 2030-31.
The government argues the freeze is a way to raise revenue without increasing headline tax rates, which it has pledged not to raise. Critics, including independent economists, describe the policy as a “stealth tax” because it increases the effective tax burden without altering the statutory tax percentages.
They point out it disproportionately affects middle-income and even some lower-income workers, since wage increases that simply keep pace with rising prices still trigger a higher tax take under the frozen thresholds Tools like salary and tax calculators let you estimate your future tax and take-home pay under the frozen thresholds helping you plan finances and negotiate salary changes with a clearer picture of your net income. Financial advisers suggest looking at tax-efficient savings, pension planning and benefit entitlements to manage the impact of fiscal drag on household budgets.