What income tax thresholds would look like if they increased with inflation | Personal Finance | Finance
Millions of UK workers have been pushed into paying income tax over the past five years because tax thresholds have not kept pace with inflation, according to new analysis from a personal finance expert. The research highlights a growing “stealth tax” on ordinary workers, as frozen thresholds effectively force more people into paying both basic and higher-rate income tax without any formal increase in rates.
It showed that three million additional people are now paying basic-rate income tax compared with 2019, and 4.6 million more than in 2015. In 2015/16, 47.4% of adults over 16 were paying the basic rate, compared with 51.9% in 2024/25. At the same time, the number of higher-rate taxpayers has also increased substantially.
More than two million extra people are now paying 40% income tax compared with 2015, bringing the total to 6.56 million, or 11.4% of the adult population, up from 8.5% a decade ago.
NimbleFins’ analysis highlights that the personal allowance, the amount a worker can earn before paying income tax, would now stand at £15,550 if it had risen in line with inflation since 2010.
Instead, it has remained frozen at £12,570 since 2021. This freeze means that basic-rate taxpayers are paying nearly £600 more a year in tax, while millions more are being nudged into higher tax brackets simply because wages have not kept pace with living costs.
Erin Yurday, CEO and founder of NimbleFins, explained the impact: “This freeze on income tax thresholds has the same effect as an income tax rise, but without any announcement.
“People on modest salaries are being hit hardest because the frozen personal allowance takes up a larger share of their real income.
“Our analysis shows just how far the personal allowance has fallen behind living costs. It’s a tax rise by another name.”
Yurday added that the consequences extend beyond individual pay packets. As more workers move into higher tax bands, effective tax rates for middle earners continue to rise.
This has the potential to reduce disposable income, dampen consumer spending, and place additional pressure on households already struggling with rising rents, mortgages, and day-to-day living costs.
