The personal allowance for income tax increased sharply during the 2010s, rising by 61 per cent in real terms between 2010-11 and 2019-20. This delivered significant gains for taxpayers, lifting many on lower incomes out of paying income tax altogether. However, since 2021 it, along with a range of other thresholds throughout the tax system, has been frozen, reversing around half of the increase enjoyed by taxpayers since 2010-11.[1] High inflation has exacerbated this, reducing the value of many of these thresholds in real terms and almost tripling the revenue originally expected from the freeze.[2] This has contributed to the rising tax burden which is set to reach a post war record high by 2026-27.[3]
Originally meant to last until 2025-26, the freeze was extended by the then Conservative government until 2027-28.[4] With the chancellor of the exchequer reportedly needing to raise £20 to 30 billion at the upcoming budget to cover increased public spending,[5] it seems increasingly likely that the freeze will be extended further beyond its 2028 deadline despite the government’s earlier announcement that this would not happen.[6] Extending the freeze beyond the current deadline would increase the financial burden on taxpayers, who have already been affected by the cumulative impact of high inflation since 2021.[7]
This note examines frozen thresholds in three key taxes: income tax, national insurance and inheritance tax, as well as other thresholds in the tax system which have been frozen. It will quantify the impact of the freeze on different groups as well as the wider economy, and make recommendations on how they should be changed to relieve the burden on taxpayers.
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Key findings
Income tax and national insurance
- Frozen thresholds represent a substantial tax rise for all groups. Compared to if thresholds had not been frozen since 2021-22 and if the secondary threshold not been reduced to £5,000 in 2025-26, income tax and national insurance in 2025-26 are:
- £1,698 higher on the median income.
- £1,698 higher on 25th percentile incomes.
- £2,222 higher on 75th percentile incomes.
- £4,003 higher on top earnings like those of GPs and consultants.
- Threshold freezes are regressive, with lower earners facing a larger tax rise. Those with 25th percentile incomes face a 25.7 per cent higher tax bill in 2025-26, compared to 15.7 per cent for the median income and 12.9 per cent for 75th percentile incomes.
- If the freeze is extended, the cost to taxpayers will rise even further. By 2029-30, compared to if thresholds had not been frozen since 2021-22 and if the secondary threshold not been reduced to £5,000 in 2025-26, income tax and national insurance will be:
- 18.5 per cent higher on the median income. In cash terms that’s £2,310.
- 30 per cent higher on 25th percentile incomes. In cash terms that’s £2,310.
- 19.5 per cent higher on 75th percentile incomes. In cast terms that’s £3,844.
- 13 per cent higher on the income of GPs and consultants. In cash terms that’s £6,515
- Ending the freeze as planned in 2028-29 would deliver savings for taxpayers. Taxes would be £173 lower for median and 25th percentile incomes, £468 lower for 75th percentile incomes and £872 lower for top incomes by 2029-30 compared to if the freeze was extended.
- Ending the freeze in 2026-27 would deliver more savings for taxpayers. Taxes would be £440 lower for median and 25th percentile incomes, £1,182 lower for 75th percentile incomes and £2,202 lower for top incomes by 2029-30 compared to if the freeze was extended.
- As a result of frozen thresholds those relying solely on the new state pension will have to pay income tax for the first time in 2027-28,[8] with the amount owed reaching £189 by 2029-30.
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[1] Adam, S. et al., The government’s record on tax 2010-24, Institute for Fiscal Studies, 2024, p.9.
[2] Resolution Foundation, Tax threshold freeze has almost tripled in size since its initial costings, with next year’s freeze set to net £12 billion, 1 April 2023, www.resolutionfoundation.org/press-releases/tax-threshold-freeze-has-almost-tripled-in-size-since-its-initial-costings-with-next-years-freeze-set-to-net-12-billion/ (accessed 20 November 2025).
[3] Office for Budget Responsibility, Public finances databank – October 2025, 22 October 2025, obr.uk/download/public-finances-databank-october-2025/?tmstv=1763638053 (accessed 20 November 2025).
[4] Office for Budget Responsibility, The impact of frozen or reduced personal tax thresholds, 2023, obr.uk/box/the-impact-of-frozen-or-reduced-personal-tax-thresholds/ (accessed 21 October 2025).
[5] Jung, C. et al., Fairness first: How the budget can make life better and the economy stronger, 19 November 2025, Institute for Public Policy Research, 19 November 2025, www.ippr.org/articles/fairness-first-how-the-budget-can-make-life-better-and-the-economy-stronger (accessed 20 November 2025).
[6] Masala, F., Fiscal drag: An explainer, House of Commons Library, 2025, p.7.
[7] Francis-Devine, B., High cost of living: Impact on households, House of Commons Library, 2025, p.4.
[8] Morgan, R., The history of the State Pension, Charles Stanley, 15 July 2025, www.charles-stanley.co.uk/insights/commentary/history-of-the-state-pension (accessed 21 November 2025).