As much as £7bn a year could reportedly be raised through 'fiscal drag', where people are pulled into higher tax rates as their pay and salaries rise over time.
Extending a freeze on income tax thresholds in the budget would not break Labour's election manifesto, government sources have suggested. The current freeze in thresholds, brought in by the previous Conservative government after the pandemic, is due to expire in 2028. However, Chancellor Rachel Reeves is now expected to prolong this for another two years to 2030.
The Financial Times, which first reported the story, suggested the measure could bring in £7bn a year. This happens through a process known as 'fiscal drag' where people are pulled into higher tax rates as their pay and salaries rise over time. Labour previously called the measure a 'stealth tax on working people' when it was announced by Rishi Sunak in 2022.
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