Budget 2025: Personal Allowance thresholds frozen to 2031
03/12/2025

Rachel Reeves kept her manifesto promise not to increase the headline rates of income tax, National Insurance or VAT on “working people”.

Instead, she quietly extended the freeze on income tax thresholds for another three years – all the way to April 2031.

That means the personal allowance (£12,570) and the higher-rate threshold (£50,270) will have been frozen for a full decade since 2021.

The result? A massive hidden tax rise through “fiscal drag” – where inflation and wage growth push millions of people into higher tax bands without any change to the actual rates.

The Numbers are Brutal

• According to the Office for Budget Responsibility (OBR), the extended freeze will pull an extra 780,000 people into paying income tax for the first time and 920,000 more into the 40% higher-rate bracket.
• By 2031, someone earning £20,000 today will be almost £600 worse off than if thresholds had risen with inflation – and over £1,000 worse off by 2031.
• The personal allowance should already be close to £16,000 today if it had kept pace with inflation since 2021; by 2031 it should be around £18,000.
• Middle earners are hit hardest: the higher-rate threshold was £43,875 in 2010. If it had risen with inflation, it would be nearly £68,500 today – not £50,270.

How much will the Treasury make? 

The official costings don’t even try to hide it:

• 2028–29: £3.36 billion
• 2029–30: £7.78 billion
• 2030–31: £12.43 billion

That’s £12.43 billion in a single year, taken mostly from people who thought they were protected by Labour’s “no tax rises on working people” pledge.

The Real Winners & Losers

Yes, the National Living Wage is rising generously, but frozen thresholds wipe out much of that gain for anyone earning above the minimum wage. Lower and middle earners will still pay hundreds – and eventually thousands – more in tax each year, while the Treasury quietly banks billions.

The Bottom Line

Rachel Reeves avoided breaking her manifesto promise on the letter of the law – but not the spirit.

Freezing thresholds until 2031 is the longest, deepest stealth tax in modern British history.

If you earn between £20,000 and £100,000, your tax bill just went up – whether you noticed it in the Budget speech or not.