Rachel Reeves is weighing a plan to quietly drain more money from workers in the UK by stretching the income tax threshold freeze past 2028.
The freeze has been in place since 2021, when the Conservatives locked the bands in without adjusting for rising prices. Now, according to The Telegraph, Reeves may extend it through the decade to help fill what analysts warn could be a £50 billion deficit.
This plan means more people pay income tax as their wages increase. Some even get pushed into higher brackets without any new tax being introduced. It’s what economists call fiscal drag, and it’s turned into a multi-billion-pound machine for the Treasury.
The Office for Budget Responsibility expects it to haul in £51 billion a year by the end of the decade. Reeves hasn’t made a final call yet, but one official said the idea is “on the very hot list” of options.
Reeves backs off pensions, leans on tax freeze
Extending the freeze would bring in about £7 billion per year. Reeves sees it as one of the only ways to raise serious money without breaking Labour’s campaign pledge.
That pledge ruled out increasing income tax rates, employee National Insurance, or VAT. But locking tax bands in place isn’t technically a rate hike. So it’s still on the table.
Reeves reportedly floated the idea last year, but then pulled back, saying it would “hurt working people.” Now her choices are tighter. Higher borrowing costs have wrecked her fiscal buffer. Her main rule is not to borrow for day-to-day spending.
That rule is already under threat. Economists think Reeves will need to find at least £20 billion in tax increases. If things get worse, the hole could go up to £50 billion.
Angela Rayner, who serves as Deputy Prime Minister, has already pushed Reeves to freeze the £125,140 threshold, where workers start paying the 45p rate.
In a private note leaked in March, Rayner called the move “consistent with the manifesto.” The OBR predicts that by 2027–28, 4.1 million people will be pulled into either the 40p or 45p tax band. All of that happens even though the official tax rates don’t move.
Reeves hasn’t ruled out a pensions grab. That option is still alive, depending on how deep the Office for Budget Responsibility says the deficit will be by autumn.
But the threshold freeze is gaining more traction because it’s easier to justify politically. The Chancellor is expected to deliver her second budget in mid-November, the earliest possible date after giving the OBR its required ten-week notice.
Gambling industry braces for new tax hit
Reeves is also preparing to hit gambling companies with higher taxes. The government is reviewing how it taxes betting and gaming, and wants to simplify things by creating a single rate across the board.
Right now, online gambling (RGD) is taxed at 21%, while high street bookmakers (GBD) and online racing bets only pay 15%. The Treasury said it’s “consulting to level the playing field,” but racecourse bets will remain exempt, since they already pay a horse race betting levy on gross profits.
The Social Market Foundation, a think tank, wants gambling taxes to go much higher, 50% on online betting, 25% on retail, and said it would raise £2 billion annually while cutting gambling-related harm. But the Betting and Gaming Council, which represents the industry, fired back hard.
In a seven-page memo to the Treasury, they called the think tank’s claims “highly flawed and misleading.” Their numbers suggest the actual increase would be £467 million, and it would cost up to 6,000 jobs if people move to black market sites and gambling shops shut down.
The last time Reeves spoke on tax policy, the message was simple: “We are committed to keeping taxes for working people as low as possible.” She also repeated that Labour won’t raise basic, higher, or additional income tax rates, National Insurance, or VAT.
That doesn’t stop her from using the UK tax code to quietly dig deeper into people’s pockets.
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Source: https://www.cryptopolitan.com/uk-treasury-income-tax-trap-for-workers/
