Rachel Reeves maintains Tory freeze on national insurance and income tax thresholds

The Chancellor has announced that the Government will be maintaining the freeze on Income tax thresholds until 2028.

This move will see people pulled into paying higher rates through a process known as "fiscal drag"

Rachel Reeves made the announcement as part of her Budget earlier today, saying that she wanted to protect the money of working people by not extending the freeze beyond 2028.

Charlene Young, pensions and savings expert at AJ Bell previously described the decision to continue the tax threshold freeze as "tantamount to raising tax by the back door".

She said: "It was a tactic used by the Conservatives to raise taxes on working households, with rising wages at a time of high inflation providing a super-charged stealth tax on earnings.

"The effect is muted somewhat when wage rises are lower, which is to be expected as inflation comes down, but it's still an easy way to boost tax revenues."

The Chancellor announced that from 2028/29 thresholds will be uprated in line with inflation.

On X Martin Lewis commented: " So keeping the huge cost of fiscal drag to raise revenue, until, just, before, the, next, election..."

Fiscal Drag is a direct result of tax thresholds not rising in line with inflation and leads to people being pulled into higher tax brackets and therefore paying more tax.

Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group said:"One of the biggest tax raising measures of recent years hasn't resulted from a tax hike but instead the decision to freeze income tax bands at 2021/22 levels. The bands had been frozen until the end of 2027/28 tax year and it is has been confirmed that they will now rise with inflation beyond this.

"As the Personal Allowance will now rise beyond £12,570, many lower income pensioners will be relieved to see their state pension income less likely to fall into scope. From next April, the state pension alone will be 95% of the Personal Allowance, leaving pensioners with only £594.40 of headroom before they begin paying income tax."

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