More than one million extra people face paying income tax this year compared with official forecasts, as frozen thresholds continue to pull more workers and pensioners into the tax net, it has been claimed. The latest projections show that fiscal drag – the process by which rising wages and benefits push people into higher tax brackets while allowances stay fixed – will affect far more households than previously estimated.
By the end of the decade the number of people liable for income tax is set to reach 44.6 million. That figure is 1.1 million higher than the Office for Budget Responsibility predicted at the time of the November Budget, and includes an additional one million pensioners.
The freeze on the personal allowance at £12,570 and the higher-rate threshold at £50,270, extended until April 2031, is the main driver. As earnings and the state pension rise with inflation, more people cross the thresholds even if their real spending power has not increased.
About 500,000 extra basic-rate taxpayers, 410,000 higher-rate taxpayers and 70,000 additional-rate taxpayers are expected in the current tax year alone. The number of pensioners aged 65 and over who pay income tax has already climbed by 630,000 in a single year to 10.2 million.
On average, taxpayers will hand over £640 more in income tax in 2026-27 than they did in 2024-25, and £1,040 more than in 2023-24. Total income tax liability is forecast to hit £347 billion, a £43 billion rise since Labour took office. Higher and additional-rate taxpayers, whose numbers have multiplied several times since 2010, will contribute nearly 73 % of all income tax collected.
The full new state pension is set to rise above the personal allowance next year, meaning even those with no private income beyond the state pension could face a tax bill unless exemptions are introduced. The Chancellor has said that pure state-pension recipients will not have to pay, but the details of how this will work remain unclear.
Savers are also feeling the pressure. Frozen personal savings allowances of £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers, combined with still-elevated interest rates, mean millions more are paying tax on interest earned outside Isas. More than 2.7 million people are expected to face savings tax bills this year, with pensioners accounting for a growing share of the total.
The effect is felt unevenly across the country. London and the South East continue to supply a disproportionate number of higher and additional-rate taxpayers, while regions with lower average earnings see more people drawn into the basic rate for the first time.
Campaigners describe the freeze as a stealth tax that raises revenue without any formal rate increase. The policy was originally introduced under the previous government and has been repeatedly extended. Critics argue it particularly hits middle earners and retirees whose incomes have only kept pace with inflation.
These figures, first highlighted in analysis reported by The Telegraph, underline how the combination of wage growth and static thresholds is expanding the tax base more rapidly than official forecasts anticipated. For many households the result will be a higher tax bill even if their living standards have not improved.
