Recent projections reveal that more than one million additional individuals will be required to pay income tax this year compared with earlier official estimates. This is largely due to fiscal drag-the phenomenon where increases in wages and benefits result in more people entering higher tax brackets, while personal allowances remain fixed.
The Office for Budget Responsibility’s latest figures indicate that by the end of the decade, the number of people liable for income tax will reach 44.6 million. This is 1.1 million higher than initially forecast in the November Budget, including an extra one million pensioners.
The principal factor behind this trend is the continuation of the freeze on the personal allowance at £12,570 and the higher-rate threshold at £50,270, a policy extended until April 2031. As earnings and state pensions rise in line with inflation, more taxpayers cross these thresholds even when their real disposable income has not increased.
READ MORE: Butcher swiftly pursues and recovers stolen meat worth £100 in Chelmsley Wood
In the current tax year alone, projections estimate an additional 500,000 basic-rate taxpayers, 410,000 higher-rate taxpayers, and 70,000 additional-rate taxpayers. Notably, the number of pensioners aged 65 and over paying income tax has surged by 630,000 within a year, reaching 10.2 million.
Taxpayers are expected to pay £640 more on average in income tax in 2026-27 compared to 2024-25, and £1,040 more than in 2023-24. Total income tax receipts are forecast to hit £347 billion, representing a £43 billion increase since Labour assumed office.
Higher and additional-rate taxpayers, whose numbers have multiplied several times since 2010, are projected to contribute nearly 73% of all income tax collected.
Additionally, the full new state pension is set to surpass the personal allowance next year. This means recipients relying solely on the state pension might face a tax bill unless specific exemptions are implemented. Although the Chancellor has assured that pure state pension recipients will not be taxed, the precise details remain unclear.
Savers also face challenges due to frozen personal savings allowances of £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers, combined with still-elevated interest rates. Consequently, over 2.7 million people, including an increasing number of pensioners, are expected to pay tax on interest earned outside Individual Savings Accounts (ISAs) this year.
The impact of these changes varies geographically. London and the South East continue to have a disproportionate number of higher and additional-rate taxpayers, while lower-earning regions increasingly see residents drawn into the basic rate for the first time.
Campaigners have criticised the allowance freeze as a stealth tax that raises government revenue without a formal rate increase. This policy, originally introduced by the previous government, has been extended repeatedly and is seen to particularly affect middle earners and retirees whose incomes have only kept pace with inflation.
These findings, initially highlighted by analysis reported by The Telegraph, demonstrate how the combination of rising wages and static tax thresholds is expanding the tax base more rapidly than previously anticipated. For many households, this results in higher tax bills despite unchanged living standards.