British households could be hit with extra costs exceeding £1,000 each as a result of a potential tax policy move by Chancellor Rachel Reeves, the Conservatives warned last night.
Analysis suggests higher-earning couples could pay as much as £1,300 more in combined income tax and National Insurance if the government goes ahead with plans to freeze income tax thresholds for an additional two years.
The Mechanics of Fiscal Drag
Even after the freeze ends, those pushed into the higher 40 per cent tax band may face an extra £900 every year.
Retired people aren’t immune either—pensioners could lose around £150 over two years, especially as the state pension is set to surpass the income tax personal allowance from 2027 onwards.
This phenomenon, known as “fiscal drag,” gradually pulls more workers—including nurses, teachers, and police officers—into higher tax brackets even if their real incomes haven’t increased.
Chancellor’s Controversial Promise
Ms Reeves had previously pledged not to extend the threshold freeze, acknowledging that doing so would break Labour’s manifesto promises and hit working families hard.
Yet, with a potential £8 billion to be raised by 2030, speculation is growing that the freeze could feature in next week’s announcement to help plug a £20 billion hole in public finances.
The freeze itself was first introduced by Rishi Sunak in 2021 and was expected to generate £42 billion by 2027-28, its original end date.
Millions Could Be Pulled into Higher Tax Brackets
The Institute for Fiscal Studies recently warned that if the freeze continues, as many as ten million Britons could be paying the 40p rate.
With other smaller tax measures also on the table, some analysts describe the upcoming plans as a “smorgasbord” of incremental tax increases.
The Milkshake Tax Could Add Fuel to the Fire
Adding to the financial squeeze, Ms Reeves is reportedly preparing to remove the tax exemption on dairy-based drinks, extending the “sugar tax” introduced in 2018 to cover milkshakes.
This move was previously avoided to protect children’s calcium intake, but now it appears it may be back on the table.
Opposition Reaction
Shadow Chancellor Sir Mel Stride hit back, saying: “Rachel Reeves could not have been clearer last year.
Freezing tax thresholds would hurt working people and breach Labour’s manifesto.
Yet now they refuse to deny these plans, which could cost families over £1,300 in extra tax. Enough is enough.”
Stride added, “Labour need to show some backbone and control spending, not keep raising taxes to pay for more welfare and waste.”
Treasury Response
A Treasury spokesman offered a cautious reply, saying: “We do not comment on speculation around changes to tax outside of fiscal events.
The Chancellor will deliver a Budget that takes the fair choices to build strong foundations to secure Britain’s future.”
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