Rachel Reeves did not increase the basic or higher rate of income tax in her Budget. The 20%, 40% and 45% rates are still there, just as before.

And yet, the Budget is still very likely to push up your tax bill before this parliament ends. Not in a loud, obvious way. But quietly. Line by line.

The reason is simple: the chancellor has chosen to freeze income tax thresholds – the points where tax starts, and where you move into a higher rate – for several more years.

In plain language: your pay can go up, prices can go up, but the tax lines on the chart stay still. That gap is where the extra money comes from.

Let’s walk through what that means, who is hit, and why people are calling it a “stealth tax” – including how it looks from a U.S. perspective.

1. What Reeves Actually Announced

First, the key change.

The UK has a personal allowance – the amount you can earn before you pay income tax. For 2025–26 it is £12,570. Above that, most people pay 20% basic rate tax How to Insulate a Tent for Winter Camping, then 40% on income above the higher-rate threshold, and 45% above the top threshold.

Normally, chancellors nudge these thresholds up each year, roughly in line with inflation. That stops more people being dragged into tax just because wages and prices rise.

That pattern stopped a few years ago:

  • In 2021, Rishi Sunak froze the main income tax thresholds from April 2022 to 2026.
  • Later, the Conservative government extended that freeze to 2028.
  • Now, Reeves has extended the freeze again, until the 2030–31 tax year, and also frozen National Insurance thresholds for three more years.

So the lines on the tax chart will sit still for almost a decade, while pay packets (we hope) creep upward.

The Office for Budget Responsibility (OBR), the UK’s independent fiscal watchdog, has put numbers on what that means:

  • Between 2022–23 and 2030–31, 5.2 million extra people will be pulled into paying income tax.
  • 4.8 million more will become higher-rate taxpayers.
  • 600,000 more will move into the top additional rate.

The OBR also says that the extended freezes announced in this Budget alone are expected to raise about £12.7 billion a year by 2030–31.

That is a very large sum, raised without a single headline rate going up.

2. Why Freezing Thresholds Is Called A “Stealth Tax”

You can think of this as tax by inflation. Economists often call it fiscal drag or “bracket creep”.

Here’s the basic idea:

  • Your pay goes up over time. It might rise with inflation Sun-Loving Color That Refuses To Quit, promotion, or a new job.
  • If tax thresholds also rise, the share of your pay going to tax can stay roughly stable.
  • If thresholds do not rise, more of your pay crosses those fixed lines. You lose more to tax even though the rate printed on paper has not changed.

It’s “stealthy” because:

  • There is no big “tax rise” number on Budget day.
  • Your payslip just shows slightly more tax each year as your gross pay increases.
  • The government can say, truthfully, “we did not raise the basic rate of tax” – even as more people pay tax and more people hit higher bands.

The Institute for Fiscal Studies (IFS) points out that, all else equal, anyone paying income tax or National Insurance will see their bill rise when thresholds are frozen. That is why this tool is so powerful. It touches almost everyone.

3. A Simple Example: Same Tax Rate, Bigger Tax Bill

Let’s use a simple, rounded example. Numbers will vary in real life, but the logic is the same.

Imagine:

  • You earn £30,000 this year.
  • The personal allowance is £12,570.
  • The basic rate is 20%.

You pay 20% on the part above the allowance:

  • Taxable income ≈ £30,000 − £12,570 = £17,430
  • Tax ≈ 20% of £17,430 = £3,486

Now imagine prices and wages rise. Your employer gives you a raise to £33,000 in a couple of years, just to help keep up.

If the personal allowance had gone up with inflation, it might have risen too. But under the freeze, it stays at £12,570.

Now your taxable income is:

  • £33,000 − £12,570 = £20,430
  • At 20%, that is £4,086 of tax

Your gross pay went up by £3,000. Your income tax went up by £600. Your tax rate is still 20%, but the slice of your income being taxed has grown. Are Blundstones Good for Hiking?

If your pay rose again and nudged you just above the higher-rate threshold, a part of your income would suddenly be taxed at 40% instead of 20%. The higher-rate line has not moved, so more people bump into it.

This is exactly what the OBR and IFS are describing. Millions more people will join the higher-rate club not because they are suddenly rich, but because the line they cross is frozen while wages inch past it.

4. Who Is Hit Hardest?

The Budget text and analysis tell us a lot about who feels this most.

People near the thresholds

If your income sits near a key line – the point where you start paying any tax, or where the 40% rate kicks in – a rise in pay can trip that wire:

  • The OBR expects about one in four employees in England and Wales to be higher-rate taxpayers by the end of the decade if freezes stay in place.
  • The freeze pushes people who once saw themselves as solid middle earners into bands that used to feel “for the rich”.

If you are already well above the higher-rate threshold, you still pay more over time. But the psychological shock is smaller than for someone who suddenly finds their payslip showing 40% tax on part of their income for the first time.

Almost anyone who gets a pay rise

As BBC-style explainers have noted, anyone who earns enough to pay income tax will be affected if their pay rises and thresholds do not. That includes:

  • Nurses, teachers, and mid-level office workers
  • Skilled tradespeople
  • Many public sector staff whose pay is catching up after years of restraint

IFs analysis stresses that frozen thresholds increase both average tax rates (what share of your income you pay) and often marginal rates (what you pay on an extra pound earned). That can change incentives to work overtime, seek promotion, or increase hours. What Is Bottom Fishing?

Lower-income households

If your income is below the personal allowance, you do not pay income tax. A threshold freeze does not bite you directly, though it can affect you indirectly through changes to benefits, wages, and prices.

Where Reeves has made a clear difference is at the low end for larger families, by scrapping the two-child limit on benefits from 2026. That change is expected to lift average incomes in affected families by around £5,300 a year and cut relative child poverty by about 450,000 children by the end of the parliament.

So at the bottom, some households see sizeable gains from welfare policy even as the tax system tightens elsewhere.

5. Why The Government Likes This Tool

From the Treasury’s point of view, freezing thresholds has a few big attractions.

  1. It raises a lot of money.
    By 2030–31, the extended freezes announced in this Budget are forecast to raise almost £13 billion a year on top of what the older freezes were already delivering.
  2. It spreads the load very widely.
    Instead of one big, noisy rise in a single tax band, small amounts come from millions of pay packets. Almost every taxpayer pays a little more than they otherwise would have.
  3. It keeps manifesto wording intact.
    Reeves has defended the freeze by saying Labour’s manifesto pledge focused on rates, not thresholds. On that narrow reading, she can say she did not break the promise, even while polls show many voters feel the spirit of the pledge has been bent How to Pack for Camping.
  4. It supports other goals.
    The revenue helps pay for policies like scrapping the two-child limit, freezing some bills, and investing in services, while still hitting fiscal targets on debt and borrowing.

From a fiscal management angle, it’s tidy. From a household budget angle, it is more painful than the calm language suggests.

6. How This Looks From A U.S. Perspective

If you are reading from the United States, this may all sound familiar.

The U.S. tax code also has brackets. When Congress fails to adjust them properly for inflation, or when credits and deductions are left unchanged as wages rise, Americans experience their own version of fiscal drag.

In the late 1970s and early 1980s, U.S. workers watched inflation push them into higher brackets even when their real living standards barely improved. That helped drive the push for indexing tax brackets to inflation.

The UK story now is a kind of reverse indexing:

  • For years, the UK moved thresholds up to keep pace with prices.
  • Since 2022, that link has been broken on purpose.
  • Each year of freeze acts like a quiet tax increase, especially if inflation and wage growth are higher than expected.

From a U.S. policy lens, what’s striking is how openly the UK is now using this tool, and for how long. Nearly a decade of frozen thresholds is unusual Dual Purpose LiFePO4 Battery in a rich democracy. The OBR’s forecast of millions more people paying higher rates shows how powerful this one decision is.

It is also a reminder that voters need to watch both the big numbers on tax rates and the fine print on thresholds. One can stay still while the other does the heavy lifting.

7. Balancing The Good News And The Quiet Cost

Reeves points to a set of policies that soften the cost-of-living squeeze:

  • Freezing regulated rail fares in England for a year
  • Freezing fuel duty again and cancelling a planned rise
  • Removing some policy costs from domestic electricity bills, which should trim average energy bills from 2026
  • Scrapping the two-child limit and boosting support for low-income families with children

These changes matter. They are not fake. Many households will feel real relief on bills and real gains from higher benefits.

But against them sits the long shadow of the threshold freeze:

  • More taxpayers overall
  • Many more higher- and top-rate taxpayers
  • A bigger share of pay going to tax for almost anyone whose earnings grow

Independent analysts are clear that, by 2030–31, the tax burden will reach a postwar high, with the freezes a central part of that story.

So when the chancellor says “ordinary people” will contribute more but those with the “broadest shoulders” will pay the most, both parts are true in different ways:

  • The very top lose more cash and face new taxes on wealth, property and investment.
  • The broad middle lose a bit more each year through fiscal drag, even if they never see a headline tax rate change.

8. What You Can Do As Thresholds Stay Frozen

You cannot change national tax policy on your own. But you can respond to it in small, practical ways. For example:

  • Check where your income sits relative to the key thresholds. If a promotion or overtime will push you into a higher band, it can still be worth it – but know what it does to your take-home pay.
  • Make use of tax-free allowances where you can, such as ISAs, pension contributions (within the rules), and other wrappers. Those rules also shift, so it pays to keep up to date.
  • Factor tax into pay talks. When you discuss raises, remember that a frozen threshold means some of the extra may go straight to HMRC. Clear numbers help you and your employer see the real change in your net pay. Is Hunting Bad for the Environment?
  • Pay attention to future Budgets. Thresholds can be unfrozen as well as frozen. Watching those lines is just as important as watching rate cuts or rises.

None of these moves cancels out the policy choice. But they help you avoid surprises when your payslip and your Budget feel out of sync.

Watching The Lines On The Tax Ladder

On paper, Rachel Reeves kept her promise not to hike the basic or higher rate of income tax. The percentages are unchanged.

In practice, freezing the thresholds that sit under those rates is doing a lot of the work that a classic tax rise would do. It pulls millions more people into the system, moves millions into higher bands, and raises tens of billions of pounds over time – all while showing the same familiar rates at the top of the page.

For families at the low end with more than two children, the Budget is a clear gain, thanks to the end of the two-child limit. For many middle earners, the story is softer: a bit of help on fares, fuel and bills now, supported by a slow, steady rise in the share of their pay that flows to the Treasury.

From both a UK and a U.S. perspective, the lesson is simple. When you think about tax, do not just listen for big rate changes. Watch the lines on the ladder. When they stop moving, your tax bill will not stand still for long.