In the 2021 budget, then chancellor Rishi Sunak introduced a freeze on the personal allowance and higher rate income tax thresholds, freezing them from 2021-22 to 2025-26.[1] This was extended to 2027-28 by Jeremy Hunt in the 2022 autumn statement, alongside reducing the additional rate threshold from £150,000 to £125,140 in April 2023.[2] Following the reversal of welfare spending cuts, Rachel Reeves is expected to extend the threshold freeze until 2029-30 to raise additional tax revenue.[3]
These continued freezes result in fiscal drag, where individuals begin paying tax, or pay tax at a higher rate as their incomes rise and nominal tax thresholds stay the same. This means people pay more tax and the government receives additional tax revenues. Income tax receipts have climbed from £195.3 billion in 2020-21, the last year before the freeze, to £305.1 billion in 2024-25.[4] By the time this freeze is currently set to end, in 2027-28, income tax revenues are forecast to have risen to £378.5 billion, over £183 billion more than before the freeze was implemented.[5] It is expected that £36 billion of this increase is a result of the freeze on personal tax thresholds.[6]
This note analyses the projected number of income tax payers in each UK region in 2021-22 to 2025-26, showing how the tax burden is shifting to a broader, less affluent base.
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Key findings
- In 2025-26, the top one per cent of income tax payers earned 12.6 per cent of total income and paid 26.6 per cent of income tax. The latter of these is down from 30.7 per cent in 2021-22. This means the top one per cent of income tax earners will have paid 2.1 times their share of income taxes in 2025-26.
- The largest increase in income tax liabilities between 2021-22 and 2025-26 was seen in the top 11-25 per cent of income with an increase of 1.9 percentage points.
- Almost 2.9 million more people will have paid the basic rate of income tax in 2025-26 than in 2021-22, while over 2.6 million more will have paid the higher rate.
- Including other rates, in 2025-26 almost 6 million more people are forecast to be paying income tax than in 2021-22 when thresholds were frozen.
- Yorkshire and the Humber is set to be the UK region with the largest percentage increase in the total number of people paying income tax between 2021-22 and 2025-26. There has been a 20 per cent increase in the total number of income tax payers in the region.
- In 2025-26, Yorkshire and the Humber is also expected to have had the largest percentage increase in basic rate taxpayers at 14 per cent. This is despite it being the region with the third lowest average earnings in the UK.[7]
- The South East is set to see the largest increase in total income tax payers since 2021-22, with an additional 831,000 people paying income tax in 2025-26. This includes 330,000 and 424,000 more people paying the basic and higher rate respectively.
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[1] HM Treasury, Budget 2021, 2021, p. 52.
[2] HM Treasury, Autumn Statement 2022, 2022, p. 49-50.
[3] Steward, H., Reeves expected to freeze income tax thresholds to raise funds after welfare U-turn, The Guardian, 27 June 2025.
[4] Office for Budget Responsibility, Public finances databank – June 2025, 20 June 2025, obr.uk/data/, (accessed 23 July 2025).
[5] Ibid.
[6] Office for Budget Responsibility, Economic and fiscal outlook – October 2024, 2024, p.73.
[7] Francis-Devine, B., Average earnings by age and region, House of Commons Library, 15 November 2024, commonslibrary.parliament.uk/research-briefings/cbp-8456/, (accessed 25 July 2025).