In the run-up to June's general election, both leader Sir Keir Starmer and the soon-to-be Chancellor Rachel Reeves pledged to "not increase taxes on working people". A threshold freeze could allow the chancellor to raise an estimated 7bn by bringing more people into the tax system without changing the actual income tax rates, despite potentially affecting the tax bills of those earning more.
The decision not to increase tax thresholds would continue a process called "fiscal drag", where more people are "dragged" into paying tax as their wages rise and cross the unchanging thresholds. If Reeves goes ahead with the plan, roughly 400,000 more people will find themselves paying income tax at the basic rate.
Government insiders have insisted this does not breach Labour's manifesto pledge to "not increase taxes on working people". They argue that the manifesto explicitly stated that the "rates" of income tax would remain the same, meaning that even if more people pay tax due to frozen thresholds, the tax rates would not rise.
In 2019, the Conservatives also pledged not to increase tax "rates" and then froze tax thresholds, a move that was criticized by Labour as a "stealth tax". However, Labour has not committed to reversing it now.
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