Under the freeze, wages that rise in line with inflation will push many workers into higher taxes, even though their real income growth has not kept pace with rising costs. This move, part of Labour’s fiscal strategy, has already sparked concerns over the long-term consequences for household spending, job retention in key sectors, and economic growth.
Middle-Income Workers Hit Hard
According to a recent analysis by The Telegraph, teachers, currently earning an average salary of £44,246, will find themselves facing a higher rate of tax, 40%, by 2031, as their wages rise in response to inflation. This same issue will affect numerous other professions, including police officers, social workers, and crane drivers, who will also soon be classified as higher-rate taxpayers.
Under the policy, income tax thresholds, which currently stand at £12,570 for personal tax-free income, will remain frozen until 2031. As inflation increases, more workers will cross the threshold and face higher tax rates, regardless of their actual purchasing power. In essence, these workers will be paying more in taxes without any real increase in their disposable income, a phenomenon known as “fiscal drag.”
Labour has defended the freeze, arguing that it is a necessary move to fund public services without raising the tax rate directly. However, critics argue that this is a form of “stealth tax,” unfairly impacting workers who are already under financial strain. The National Education Union (NEU), for example, is planning strike ballots in response to the freeze, highlighting that teachers, who have seen their pay rise by 10% in the past two years, will be among those hardest hit by the policy.
The Policy’s Wider Economic Impact
Beyond individual workers, the freeze on tax thresholds is likely to have broader economic consequences. According to economists, the policy is expected to slow growth by reducing household spending power, as workers will have less disposable income. This comes at a time when the UK economy is already struggling with inflationary pressures and a difficult job market.
John O’Connell, chief executive of the Taxpayers’ Alliance, argues that the policy represents an “absurd” situation where people in essential roles such as social workers and crane drivers will be taxed at higher rates, despite their salaries remaining modest by many standards. O’Connell warns that this could damage growth in the long term, as higher taxes may discourage spending and investment.
The freeze is also likely to impact workers in critical sectors like policing. According to the Police Federation, most police officers will soon fall into the higher tax band, with the average constable’s salary crossing the £50,271 threshold by the 2027-2028 tax year. This marks a significant shift from previous years, when higher-rate tax was typically reserved for senior ranks within the police force.
While the government claims that freezing the tax thresholds is necessary to fund key welfare and public services, there are growing concerns that this policy could undermine morale in essential public sector roles.
