Chancellor Rachel Reeves presented the Spring Statement in the House of Commons today, focusing on potential tax adjustments. Personal tax thresholds are currently fixed until the end of the 2030/31 fiscal year, a decision extended by three years from the original plan to unfreeze in April 2028, as announced in the Budget last November.
The Office for Budget Responsibility projected that this freeze would lead to an increase in the number of taxpayers across different income tax brackets in the 2029/30 period. Despite expectations, there were no new tax threshold alterations disclosed in today’s Spring Statement by Rachel Reeves, maintaining the freeze until 2030/31.
The concept of freezing tax brackets, termed fiscal drag, gradually pushes individuals into higher tax brackets with income growth. This method is also referred to as a stealth tax, enabling the government to raise tax revenue without officially raising tax rates.
Currently, the personal allowance stands at £12,570, indicating the threshold before income tax applies. Earnings above this amount incur a 20% basic rate of income tax, with a 40% rate for income exceeding £50,270 and a 45% rate applicable beyond £125,140.
Moreover, the National Insurance starting threshold matches the personal allowance at £12,570. Individuals pay 8% in National Insurance contributions on earnings from this threshold and 2% on income surpassing £50,270.