The government has insisted that freezing income tax thresholds beyond 2028, which is set to be announced in the upcoming budget, would not be a breach of Labour’s election manifesto promise. Both Sir Keir Starmer and Chancellor Rachel Reeves had pledged not to increase taxes on working people in the run-up to the general election in June. However, extending the threshold freeze could help the Chancellor raise £7bn by bringing more people into the tax system. Reeves is currently working on a plan to raise £40bn through a combination of savings and tax rises.
Tax thresholds were frozen by the previous Conservative government in 2022 and were meant to rise again yearly from 2028. It is believed that the Chancellor is considering extending the freeze for the entire parliamentary term. If this plan goes ahead, approximately 400,000 more individuals would end up paying income tax at the basic rate because of fiscal drag.
Sources have stated that not increasing tax thresholds would retain the rates of income tax in England, Wales, and Northern Ireland at 20p, 40p, and 45p, based on income, but as people’s wages increase, so will their tax bill. Reeves has only 11 days left to finalize her plans before the budget announcement. There is currently a £22bn shortfall in public finances caused by the regulations governing how much money the government can borrow over the next five years. Reeves has warned of “difficult decisions” ahead as she aims to find £40bn to avoid real-terms cuts to government departments
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