Healey's Budget Keeps Income Tax Thresholds Frozen Until 2030

Chancellor John Healey's first budget keeps UK income tax thresholds frozen until 2030 — extending a policy the Office for Budget Responsibility says will push the share of taxpayers paying higher or additional rate tax from 15% in 2021-22 to 24% in 2030-31.

Healey didn't mention the freeze in his budget speech. The documents show it remains in place, continuing a chain of decisions that started with Rishi Sunak in 2021. Sunak froze thresholds from April 2022 until 2026. The Conservative government extended that to 2028, and Rachel Reeves, then Labour chancellor, pushed it to 2030 last year.

Here's the mechanics. Until 2021, thresholds typically rose each year with inflation. Freezing them creates what economists call "fiscal drag" — pay rises pull workers into higher tax bands even though the rates themselves haven't changed. It's one of the biggest tax rises in recent years, delivered without a single rate increase.

What does this change for your take-home pay?

The practical question for anyone negotiating a raise: how much of it will you actually keep? The answer is less than you'd expect, because frozen thresholds mean your pay rise spills into the next bracket.

The OBR has quantified the gap. Had the personal allowance moved with CPI inflation from 2021 through 2030-31, it would be £4,900 higher. The point at which the higher rate kicks in would be £20,100 higher — roughly £70,370 instead of £50,270.

In other words, a worker earning £60,000 today is paying 40% on income that would still sit in the 20% band if thresholds had kept pace with prices.

The current thresholds, in plain terms

The bands apply across England, Wales and Northern Ireland:

• £0 to £12,570 — the personal allowance. No income tax.
• £12,571 to £50,270 — basic rate, 20% on earnings.
• £50,271 to £125,140 — higher rate, 40%.
• Above £125,140 — additional rate, 45%.

There are extra charges on savings and property income.

One trap worth flagging for higher earners: once your income tops £100,000, your personal allowance shrinks by £1 for every £2 you earn. By £125,140, it disappears entirely — an effective marginal rate far above the headline 40%.

And remember, only income above a threshold gets the higher rate. On £60,000, you pay 40% on £9,730 — the slice above £50,270 — not the whole salary.

The quiet mechanics of a nine-year squeeze

Many workers get inflation-matched pay rises each year. When thresholds rose alongside them, more of the new earnings stayed at the lower rate. With thresholds locked, each raise pushes more income into the 40% band.

The compounding effect explains the OBR's headline number: nearly one in four taxpayers paying higher or additional rate tax by 2030-31, up from one in seven a decade earlier. That's a structural shift in who bears the income tax burden, achieved entirely through inaction on thresholds.

The Institute for Fiscal Studies' inflation forecasts, applied to earnings and thresholds, let you calculate your own bill: the end figure is how much larger your tax bill will be in 2030 compared with a world where thresholds had tracked inflation. Each intervening year brings a smaller but similar increase.

For earners above £100,000, the calculations include the loss of some or all of the personal allowance, so the hit compounds faster.

The freeze runs to 2030. Unless a future chancellor breaks the pattern — and three chancellors from two parties haven't — fiscal drag remains a built-in feature of UK wage growth for the rest of the decade.