The debate over taxation in the UK has intensified after Prime Minister Keir Starmer refused to rule out keeping the controversial “stealth tax” that is pushing millions of Britons into higher tax brackets. Despite mounting pressure to clarify his position, Starmer has dodged direct answers on whether he will scrap the income tax threshold freeze that has left workers paying more tax without an official rate increase.
With millions affected, the question remains: Will Labour take action to ease the tax burden, or will the government continue to capitalize on this hidden tax increase? Let’s break it down.
What is the ‘Stealth Tax’ and How Does it Work?
The term “stealth tax” refers to a form of indirect taxation where the government increases tax revenue without officially raising tax rates. In this case, it relates to the freezing of income tax thresholds—a policy introduced by the Conservative government in 2022 and extended until 2028.
How Does It Work?
- Normally, tax thresholds rise with inflation, ensuring that pay increases do not push people into higher tax brackets.
- However, freezing tax thresholds means that as wages rise, more people are pulled into higher tax bands, paying more tax than before.
- This phenomenon is known as “fiscal drag”, and it has quietly increased the tax burden on millions of workerswithout an official tax rate hike.
Essentially, workers who receive pay raises to keep up with inflation are finding themselves paying more tax, even if their real purchasing power hasn’t increased.
The Tax Threshold Freeze: Who is Affected?
The tax threshold freeze has already had a major financial impact on UK workers. The longer it remains in place, the more people will pay higher taxes, even if their standard of living hasn’t improved.
Key Income Tax Thresholds in 2025:
- Personal Allowance: £12,570 (no tax paid below this)
- Basic Rate (20%): £12,571 – £50,270
- Higher Rate (40%): £50,271 – £125,140
- Additional Rate (45%): Above £125,140
Because these thresholds haven’t increased since 2022, millions of people who previously paid a lower tax rate are now moving into higher tax bands.
Who Is Most Affected?
✔ Middle-income earners are being pushed into the 40% higher tax bracket as wages rise.
✔ Lower earners who previously didn’t pay income tax are now being dragged into the 20% tax bracket.
✔ Pensioners who receive state pensions and small private pensions are also affected if their income crosses the £12,570 threshold.
How Much More Tax Will You Pay?
- The tax threshold freeze is estimated to cost the average worker an extra £500 – £1,000 per year.
- The Office for Budget Responsibility (OBR) predicts the freeze could pull over 1 million more people into higher tax bands by 2028.
Keir Starmer’s Position on the Stealth Tax: A Lack of Clarity
During a recent Prime Minister’s Questions (PMQs) session, Keir Starmer was directly asked whether he would scrap the tax threshold freeze and provide relief to millions of taxpayers.
Instead of giving a clear answer, Starmer avoided the question, criticizing the previous Conservative government’s economic policies but refusing to commit to reversing the freeze.
What Has Starmer Said About It?
📢 “The Conservatives wrecked the economy, and we’re cleaning up their mess.”
📢 “We will not raise income tax, VAT, or National Insurance rates.”
However, not raising tax rates does not mean taxes won’t go up—fiscal drag continues to push millions into higher tax brackets.
Chancellor Rachel Reeves Confirms the Tax Freeze Could Continue
In a further blow to taxpayers, Chancellor Rachel Reeves has hinted that the tax threshold freeze could be extended beyond 2028. Reports suggest that keeping the freeze could raise an extra £7 billion for the government, making it an attractive option for maintaining public spending without an official tax hike.
Political Reactions: Critics vs. Supporters
Keir Starmer’s refusal to clarify Labour’s position on the stealth tax has sparked strong reactions across the political spectrum.
Criticism from Conservative Leaders
Kemi Badenoch, a key Conservative leader, has accused Starmer of deceiving the public by allowing a hidden tax increase while claiming not to raise taxes.
📢 “Starmer is misleading the British people. He promised not to raise taxes, but his refusal to scrap the stealth tax shows he’s doing exactly that.”
Many Conservative MPs are demanding Labour reverse the freeze to provide financial relief for workers.
Labour’s Justification for the Tax Threshold Freeze
Labour supporters argue that keeping the freeze is necessary to fix the economic damage caused by the previous government.
✔ Government debt remains high, and reversing the tax freeze could reduce funding for key services.
✔ Labour has promised investment in public services, and reversing the freeze could create a shortfall.
✔ Higher earners are still paying a “fair share”, ensuring wealthier individuals contribute more to the economy.
However, critics argue that middle-income earners are being unfairly squeezed, with no sign of tax relief in sight.
The Economic Impact: Will the Stealth Tax Hurt Growth?
Experts warn that keeping the tax threshold freeze could have negative consequences for the economy:
❌ Reduced Disposable Income: As more people pay higher taxes, they have less money to spend, which slows down economic growth.
❌ Lower Incentive to Work & Invest: If workers know that any pay raise will be taxed at a higher rate, some may feel less motivated to work extra hours or seek promotions.
❌ Higher Inflation Impact: With the cost of living rising, failing to adjust tax thresholds makes it even harder for people to afford basic necessities.
On the other hand, Labour argues that the extra tax revenue is needed to maintain public services and invest in infrastructure.
Conclusion: Will Starmer Scrap the Stealth Tax?
Keir Starmer’s refusal to rule out keeping the tax threshold freeze has left millions of Britons uncertain about their financial future. While he claims Labour will not raise income tax rates, the reality is that many workers are already paying more tax than ever before due to the stealth tax effect.
With a potential extension of the freeze beyond 2028, taxpayers face years of higher tax bills with no relief in sight.
Key Takeaways:
✔ The income tax threshold freeze is pushing millions into higher tax brackets without an official rate increase.
✔ Keir Starmer refuses to confirm whether Labour will scrap or extend the tax freeze.
✔ Chancellor Rachel Reeves suggests the freeze could continue beyond 2028, raising billions in extra revenue.
✔ Critics argue this is an unfair tax rise on middle and lower-income earners.
The big question remains: Will Labour take action to ease the tax burden, or will Britons continue paying more under the hidden stealth tax?
FAQs
1. What is the UK’s stealth tax?
The stealth tax refers to the income tax threshold freeze, which means that as wages rise, people are pushed into higher tax brackets without an official tax rate increase.
2. How much extra tax will people pay due to the freeze?
The average worker could pay £500 – £1,000 more per year, with over 1 million more taxpayers moving into higher tax brackets by 2028.
3. Will Labour scrap the tax threshold freeze?
Keir Starmer has not committed to scrapping the freeze, and Chancellor Rachel Reeves has suggested it may continue beyond 2028.
4. Why is this tax freeze controversial?
Critics argue that it unfairly raises taxes on middle-income earners while the government avoids officially increasing tax rates.
5. When will the tax freeze end?
As of now, it is set to last until 2028, but Labour has not ruled out extending it further.
