Budget 2024: Reeves considers income tax threshold freeze

Tax thresholds were frozen by the previous Conservative government in 2022, but were due to rise again each year from 2028.

The chancellor is now said to be weighing a plan to extend the freeze for the remainder of the parliament.

The decision not to increase tax thresholds would continue a process called “fiscal drag”, in which more people are “dragged” into paying tax, or higher rates of tax, as their wages rise and cross the unchanging thresholds.

If Reeves goes ahead with the plan, roughly 400,000 more people will find themselves paying income tax at the basic rate.

Government insiders have insisted this does not breach Labour’s manifesto pledge to “not increase taxes on working people”.

Sources are pointing to the exact wording of the manifesto, which states that the “rates” of income tax would not rise.

In other words, in England, Wales and Northern Ireland these would remain – depending on income – at 20p, 40p and 45p. 

But as people’s wages increased, so too would their tax bill.