UK government freezes tax thresholds until 2031, impacts household budgets.

Income tax thresholds will stay frozen at 2021 levels until April 2031, the Office for Budget Responsibility confirmed in documents released after the latest Budget. The decision means that, for the next four years, a larger share of wages will be taken as tax, even if pay rises in line with inflation. Chancellor John Healey did not highlight the end of the freeze in his speech, but the OBR data shows the policy is set to change after the 2031‑32 tax year.

The freeze has been in place under successive chancellors, beginning with Rishi Sunak, as a way to raise extra revenue without altering headline rates. It is often called a “stealth tax” because the impact is not obvious on a payslip. By keeping the personal allowance and higher‑rate thresholds static, the government has been able to collect more money to fund defence, the NHS, schools and support for the sick, disabled and elderly.

The OBR estimates the frozen thresholds will generate about £58 billion by 2030‑31, roughly the amount the government spends on transport and close to current defence spending. Over that period an extra 6.8 million people will pay income tax who would not have if the allowance had risen with inflation. The personal allowance remains at £12,570, meaning anyone earning less pays no income tax. After 2031 the allowance and other thresholds will be indexed to inflation, allowing workers to keep more of any pay rise. A new pension tax allowance will protect low‑income pensioners, even as the state pension climbs above the current personal‑allowance level.

The practical effect is that, as wages increase, a bigger slice of earnings will fall into taxable bands until the thresholds adjust in 2031. That will squeeze household budgets, especially for those close to the £12,570 limit. Once the freeze ends, future pay rises will be less eroded by tax, improving take‑home pay for many. The change also applies across the UK, including Scotland, and will affect National Insurance contributions, which use the same thresholds. Workers and pensioners should watch their next payslip for the impact and plan accordingly.