Comments wanted from tax and savings experts about what the impact of continued frozen tax thresholds will be

Frozen thresholds are warping behaviour. I see high earners turning down pay rises, cutting back to four days a week or feeling trapped because an extra £1 can mean losing childcare hours and being taxed at an effective 60%. It’s not just income tax – your Personal Savings Allowance halves at higher rate and disappears at additional rate, while funded childcare support falls away the moment adjusted net income tips over £100k. Many don’t realise that paying into a pension can bring them back below the line, keeping vital benefits while building long-term wealth. These freezes aren’t just raising revenue without having to announce a tax rise, they’re reshaping how people work, save and plan. The bigger risk is that government underestimates the damage to economic output.

Frozen tax thresholds, or fiscal drag, are a stealth tax used by governments of all colours for as long as I can remember. They mean you pay more tax each year even if you’re no better off in real terms. The bigger problem is the cliff edges when modest pay rises push people into higher tax bands. For example, under the new Winter Fuel rules, a pension increase of just £1 over £35,000 would lose the allowance entirely. Similarly, someone on the cusp of higher rate income tax, with £25,000 on deposit earning 4% interest (£1,000 a year) could see a £500 pay rise push them into the higher-rate band. That would not only cost £210 in income tax and NI but also £200 more in tax on their savings — an effective 82% rate on that pay rise. These cliff edges are especially damaging and unfair.

The ongoing freeze on tax thresholds is a stealth tax in all but name and it’s no longer just the highest earners feeling the squeeze. More and more middle earners are being dragged into higher tax bands, losing valuable allowances and facing tax bills on income and savings that were previously protected. Labour may claim not to be raising taxes for working people, but these frozen thresholds effectively do the same job for them quietly.

62% Tax and Lost Benefits . The Stealth Traps, Hitting Families Hard. The £100k income level is no longer the preserve of the wealthy but crossing it unleashes some of the harshest quirks in the tax system. Once you earn above £100,000, you lose your personal allowance at £1 for every £2 of income, meaning it’s gone by £125,140. Add National Insurance and the effective rate is a punishing 62% marginal tax. It doesn’t stop there. All taxable income counts, even so-called “tax-free” allowances on savings interest and dividends, which can push you over the £100k line and claw back your PA. Families are hit twice: Child Benefit is now tapered away and gone completely at £80,000. For a household with two children, that means losing around £1,800 per year. Cross £100k and you also lose access to tax-free childcare support worth £2000 per year. With wages rising and thresholds frozen, more households are dragged into higher bands, taxed on “tax-free” income, and stripped of their benefits.