Have you opened your payslip lately and wondered where that extra chunk of money disappeared to? You’re not imagining things. Over the past few years a silent mechanism has been eating away at take-home pay across the country, and the latest Budget just turned the dial up even higher.
What used to be dismissed as a temporary Tory measure has now been adopted, extended, and – let’s be honest – rebranded. The freeze on income tax thresholds is here until 2031, and for millions of us that means paying significantly more tax without a single headline rate going up. It’s the ultimate stealth move.
The Quiet Tax That Just Got Louder
When politicians promise “no rise in income tax rates”, listen very carefully to what they’re not saying. They’re perfectly happy to let inflation and wage growth do the heavy lifting. By keeping the personal allowance and the higher-rate threshold frozen, more of your salary creeps into taxed territory every single year. Economists call it fiscal drag; most of us just call it annoying.
The numbers are eye-watering once you string them together. What started as a “temporary” freeze in 2021 has now been locked in for a full decade. Independent forecasts suggest the Exchequer will pull in an extra £12 billion between 2028 and 2031 alone from this one policy. That’s £12 billion that would otherwise have stayed in people’s pockets.
How Much Will It Actually Cost You?
The pain isn’t evenly spread – the more you earn, the harder it bites. Here’s a realistic breakdown for today’s salaries, assuming average wage growth continues:
| Current Salary | Extra Tax 2028–2031 | Why It Hurts |
| £15,000 | £259 | Personal allowance erosion |
| £30,000 | around £500 | Steady drift into basic-rate band |
| £45,000 | £683 | Closer to higher-rate trigger |
| £47,000–£52,000 | up to £1,292 | Dragged into 40% tax bracket |
| £60,000+ | £2,000+ | Loss of personal allowance begins |
That £47,000 earner is the real poster-child for this policy. Perfectly comfortable middle-income today, but by 2028–2029 wage inflation will have pushed them over the higher-rate threshold without them ever feeling “rich”. Suddenly 40% tax on part of their income, plus the loss of child benefit if they have kids. It’s a brutal double whammy.
Where We Would Have Been Without the Freeze
Sometimes the counterfactual is the clearest way to see the damage. If thresholds had simply kept pace with inflation since 2021:
- The personal allowance would be around £17,470 by 2031 instead of £12,570
- The higher-rate threshold would sit above £70,000 rather than £50,270
- Millions fewer people would pay 40% tax
In other words, the average worker is looking at more than £20,000 of extra taxed income over the decade simply because the bands never moved. That’s not a tax rise in name, but it certainly feels like one in the bank account.
“Every taxpayer will see their wages quietly eroded by higher tax bills – there’s no way to sugar-coat it.”
– Head of personal finance at a major investment platform
Who Gets Hit Hardest?
Young professionals on upward trajectories feel this the most. A graduate starting on £30,000 today could quite reasonably expect £45,000–£55,000 within eight to ten years. That used to be solidly middle-class, basic-rate tax territory. Now it risks tipping them into higher-rate tax years earlier than any previous generation.
Public sector workers with predictable pay scales are another vulnerable group. Teachers, nurses, police officers – the very people we clapped for not long ago – are seeing their incremental rises swallowed almost entirely by bracket creep.
And then there are families. Cross the higher-rate line and child benefit starts disappearing fast (£1,000+ per child can vanish). Add the personal allowance taper above £100,000 and you hit marginal tax rates of 60% or more in some income bands. Hardly the “reward for hard work” we’re usually sold.
Practical Steps You Can Take Right Now
The good news? You’re not completely powerless. There are perfectly legal, government-encouraged ways to fight back against fiscal drag. Here are the moves I see savvy clients making – and that I use myself.
- Max your pension contributions – Every pound you put in is deducted before tax is calculated. Higher-rate relief turns £100 into £125 (or £166 for additional-rate taxpayers) instantly.
- Salary sacrifice – If your employer offers it, this is pure gold. You reduce your taxable salary and NI at the same time. Some people knock themselves out of the 40% band entirely this way.
- Fill your ISA allowance every year – £20,000 growing tax-free is the closest thing we have to a legal tax haven.
- Use the dividend allowance cleverly – Still £500 this year before it drops again. Bonus payments or freelance income paid as dividends can help.
- Gift Aid for charities – Higher-rate donors get extra relief, and the charity claims the basic rate portion.
In my experience, the pension route is usually the biggest win. A 35-year-old putting an extra £5,000 a year into their pension via salary sacrifice could easily save £3,000–£4,000 in tax and NI over the next few years while building a bigger retirement pot. The numbers stack up remarkably quickly.
The Bigger Picture – Is This Fair?
Let’s be honest for a second. Freezing thresholds is politically convenient because it’s almost invisible. No dramatic 1p or 2p rise to dominate the front pages, just a slow, grinding increase that most people only notice when they do their end-of-year sums.
There’s an argument that tax has to come from somewhere – public services aren’t free. But doing it this way feels deeply regressive in practice. Someone earning £200,000 still pays a smaller proportion of their pay rise in extra tax than someone moving from £49,000 to £52,000 and suddenly losing 20% marginal rate on the increase.
Perhaps the most frustrating part is the broken promise aspect. Both main parties have now used this trick while swearing blind they’re not raising taxes on “working people”. At some point the definition of “working people” seems to stretch all the way to six-figure salaries and beyond.
What Happens After 2031?
Nobody serious expects the freeze to be lifted bang on schedule in 2031. Once a revenue stream this lucrative is in place, governments of all colours tend to keep it. We might see a small inflation-linked increase to save face, but a return to proper indexation feels optimistic.
The longer this goes on, the more distorted the tax system becomes. We’re rapidly approaching the point where half the workforce pays higher-rate tax – something unthinkable a generation ago. That has profound effects on work incentives, regional pay differences, and the attractiveness of overtime or promotion.
So if you’re in your 20s, 30s or 40s right now, assume the current structure – or something very like it – will be with you for decades. Planning your career, your savings, and your family finances around that reality is probably the smart move.
“The cumulative cost is staggering – tens of billions a year that would have stayed in taxpayers’ pockets under the old rules.”
Look, none of this is to induce panic. Most of us will still be significantly better off in ten years than we are today – real wages are rising, after all. But understanding exactly how much of that rise is being silently redirected to the Treasury lets you make informed choices.
Run the numbers for your own salary. Speak to your employer about salary sacrifice. Check you’re using every tax wrapper available. Because while politicians argue about whose freeze it is, the only person who can really protect your pay packet is you.
Stay sharp out there.
