IFS analysis reveals £48,000 income bracket will see the steepest rise in tax burden as fiscal drag quietly reshapes the system. Treasury defends decision, but critics call it a targeted hit on Britain’s working professionals.
Rachel Reeves’ decision to extend the freeze on income tax thresholds until 2031 has sparked sharp debate, with new data showing that middle-income earners stand to lose more in absolute terms than many higher earners. The policy, first introduced as a temporary measure in 2022, was prolonged under Labour’s November Budget and now appears to be one of the government’s most lucrative revenue-generating tools.
According to new analysis by the Institute for Fiscal Studies (IFS), workers earning £48,000 per year will pay an additional £603.50 in tax by the end of the freeze. These findings challenge Chancellor Reeves’ stated aim of ensuring those with the “broadest shoulders” contribute the most. While she has defended the policy as a necessary collective effort, opponents argue it contradicts Labour’s earlier pledges.
Fiscal Drag Pulls Middle Earners Deeper into Tax Net
The most significant impact of the income tax threshold freeze is falling not on high-income earners, but on those in the middle of the income distribution. The IFS data shows that someone earning £150,000 annually will pay only £393.59 more in tax over the same period, a figure notably lower than that faced by those on £48,000.
This phenomenon is the result of fiscal drag, a process whereby income tax thresholds remain fixed while wages increase, causing individuals to be pushed into higher tax bands without any change in the official tax rates. An estimated 4.8 million people will be pulled into the 40 percent tax bracket, which was initially designed for the wealthiest earners.
The professions most affected include senior teachers, police officers, and NHS nurses, workers whose wages have risen modestly over recent years but now find themselves penalised. Reeves’ freeze on thresholds was the single biggest revenue-raising measure in her budget, the IFS concluded, outpacing more visible fiscal moves such as the proposed mansion tax.
Government Stance under Scrutiny amid Backlash
Reeves has maintained that the policy does not breach Labour’s manifesto promises, noting that headline rates for income tax, National Insurance, and VAT remain unchanged. “Our manifesto was clear; it referred to the rates of income tax, national insurance and VAT. But I have been very clear… that everyone makes a contribution through freezing those thresholds.” she stated.
Yet her defence has drawn criticism from across the political aisle. Shadow Chancellor Sir Mel Stride accused her of “trying to pull the wool over Britain’s eyes,” arguing the freeze amounts to “raiding working people’s pay packets” to support wider public spending commitments. He added that the tax burden now falls heaviest not on the top ten percent of earners, but on the very segment of society Labour claims to protect.
The Treasury, for its part, has cited distributional analysis to argue that its broader package of tax and spending measures still ensures the wealthiest carry the greatest burden. However, the IFS continues to highlight that the prolonged threshold freeze alone disproportionately impacts middle-income households.
First introduced by then-Chancellor Rishi Sunak and later extended by Jeremy Hunt, the threshold freeze was originally intended as a post-pandemic measure. Reeves had previously criticised the policy in opposition, likening it to “picking the pockets” of working people, remarks that are now being revisited by critics in light of her decision to extend the measure further.
