UK Chancellor considers extending income tax freeze

Chancellor Rachel Reeves is considering an extension of the current freeze on income tax thresholds as part of her autumn Budget, Treasury sources have indicated. The move is being discussed as one of the main options to address a widening gap in public finances.

According to officials familiar with the plans, the Treasury is under pressure to find additional revenue while avoiding sharp increases in headline tax rates. The freeze on thresholds, first introduced by the Conservative government in 2021, has remained in place for four years. If it is extended, more workers will gradually pay higher levels of income tax without any formal rise in rates.

This “fiscal drag” has become a significant issue as wages rise in response to inflation. With tax bands remaining fixed, many employees find themselves pushed into higher tax brackets, effectively paying more to the government despite no changes in official rates. Economists warn that the measure could raise billions of pounds for the Exchequer, but also place a heavier burden on middle-income households already squeezed by living costs.

Alongside income tax measures, advisers have also confirmed that higher gambling duties are expected to feature in the upcoming Budget. The Treasury is reportedly considering changes to betting levies, including a rise in taxation on the gambling industry. This would likely affect bookmakers and online operators, despite strong lobbying from the horse racing sector to avoid additional charges.

The prospect of increased gambling duties has already drawn criticism from industry representatives, who argue that further taxation could harm investment in racing and reduce revenues for related businesses. However, officials believe the sector remains a viable source of additional funds at a time when balancing the national accounts is proving increasingly difficult.

Reeves is due to deliver her second Budget this autumn, with government borrowing and spending pressures under close scrutiny. Analysts suggest that extending the threshold freeze could raise billions over the coming years without attracting the immediate backlash that might accompany a rise in income tax rates or national insurance contributions.

For households, the impact of a continued freeze is likely to be felt gradually. As inflation continues to lift wages, more workers will move into higher tax brackets, leaving many paying a greater share of their earnings to the state. Critics have labelled this a “stealth tax,” warning that it disproportionately affects ordinary workers rather than higher earners or large corporations.

The Treasury has not formally confirmed the final details of the Budget. However, officials have made clear that difficult decisions will be required to stabilise the public finances while meeting spending commitments.

The Chancellor is expected to outline the full package of measures in her autumn statement, with both households and industries watching closely for the implications.