Chancellor Rachel Reeves presented her Spring Statement in the House of Commons today, addressing the issue of major tax changes. The current freeze on personal tax thresholds is extended until the end of the 2030/31 financial year, as announced by the Chancellor in her Budget last November, pushing back the unfreezing originally planned for April 2028.
The Office for Budget Responsibility projected that this freeze would lead to an increase in the number of basic-rate, higher-rate, and additional-rate income tax payers in the upcoming years. Despite expectations, no new adjustments to the tax thresholds were revealed in today’s Spring Statement, keeping them frozen until 2030/31.
The decision to freeze tax brackets is commonly referred to as fiscal drag, gradually pushing more individuals into higher tax brackets as their incomes rise. This method is often described as a stealth tax, allowing the government to collect more revenue without explicitly raising tax rates.
Currently, the personal allowance stands at £12,570, determining the income threshold before tax obligations kick in. Earnings exceeding this amount are subject to the basic 20% income tax rate. Higher rates of 40% apply to incomes above £50,270, while the additional 45% rate triggers when earnings surpass £125,140.
Additionally, the National Insurance payment threshold is aligned with the personal allowance at £12,570. Individuals contribute 8% of their earnings in National Insurance once they reach this threshold, with a 2% rate applying to incomes above £50,270.
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