Reeves’ £26bn tax freeze to drag 920,000 into higher rate by 2031, says BBC’s Faisal Islam

When Rachel Reeves stood at the despatch box in the House of Commons on November 28, 2025, she didn’t raise tax rates. She did something quieter — and far more pervasive. She froze them in place. And that, as Faisal Islam of the BBC explains, is how you make millions pay more without ever saying "I’m raising your taxes." The result? By 2031, nearly one in four UK taxpayers will be paying some income at the 40% rate — not because they’ve earned more, but because the thresholds haven’t moved since 2021. The Office for Budget Responsibility estimates 920,000 extra people will be pulled into the higher rate bracket over the next five years. That’s not a tax hike on paper. It’s a tax hike in practice. And it’s the biggest money-raiser in Rachel Reeves’s £26 billion Budget.

The Silent Tax Grab: Fiscal Drag Explained

Fiscal drag isn’t a new trick — but it’s never been this blunt. The basic income tax threshold has been stuck at £12,570 since 2021. The higher-rate threshold? Still £50,270. Meanwhile, wages have crept up. Inflation hasn’t vanished. So even if you’re earning £55,000 — a solid middle-class salary — you’re now paying 40% on part of your income, not because you’re rich, but because the government hasn’t adjusted the brackets. It’s like keeping the same speed limit on a highway that’s now full of supercars. You’re not breaking the law. But you’re going faster than the rules were designed for.

Reeves didn’t call it a tax rise. She said she was "keeping contributions as low as possible" and avoiding "reckless borrowing." But the numbers tell another story. By freezing thresholds until April 2031, she’s locking in a £26 billion revenue boost over five years. The Office for Budget Responsibility says this will push the UK’s total tax take to a record 38% of national income by 2030-31 — the highest since the 1940s. And it’s not just income tax. The Rachel Reeves Budget also includes a new property charge, tighter ISA rules, and a pension cap — all quietly expanding the state’s grip on household finances.

The Property Tax That Could Shake the Wealthy

Starting April 2028, homes valued over £2 million will face a new annual charge — £2,500 for properties worth £2-£5 million, rising to £7,500 for those over £5 million. It’s not a new tax band. It’s an add-on to council tax. And it’s targeted squarely at the top 0.3% of properties — those in bands F, G, and H. The Times reports some of these homes could see total council tax bills exceed £6,000 a year. That’s more than many families pay in rent. The move is politically smart: it’s a tax on assets, not income. And it’s easy to justify as "fairness." But it’s also a warning. If the government can add £7,500 to a £10 million home’s bill, what’s to stop them adding more later?

ISAs, Pensions, and the Middle-Class Squeeze

Then there’s the ISA cut. From April 2026, under-65s will only be able to shelter £12,000 — down from £20,000 — in tax-free savings. The government says it’s to "encourage investment in UK stocks." But for most people, that’s a non-starter. The stock market isn’t a piggy bank. It’s a gamble. And for a family saving for a house or a child’s education, losing £8,000 in tax-free space isn’t encouragement — it’s a penalty.

Even more painful is the £2,000 cap on salary sacrifice pension contributions. Right now, you can redirect your salary into a pension and avoid National Insurance on the whole amount. That’s a powerful tool for higher earners. But from 2026, anything above £2,000 will be taxed — both by employee and employer. The Sky News’s Sophy Ridge estimates this will raise £4.7 billion. But for a couple earning £60,000 each, it means losing £1,600 over two years — money that could have gone to a deposit, a holiday, or emergency savings. That’s not a policy for the wealthy. That’s a policy for the middle class.

"The Manifesto Commitments Stand Today" — But For How Long?

Reeves promised during the election she wouldn’t raise the main tax rates. And she hasn’t. But as Faisal Islam noted, she’s now justifying the freeze with a narrative of "global headwinds" and "long-term damage to the economy." She’s preparing the public for harder choices ahead. Chief Secretary Darren Jones insists the manifesto pledges "stand today." But in politics, promises are often anchors — not handcuffs. The Office for Budget Responsibility forecasts slower growth from 2026. That means less revenue. More pressure. More deficits. And if the economy doesn’t rebound, what’s to stop another £10 billion tax rise next year — under the same "no rate hikes" banner?

What’s Next? The 2027 OBR Report Will Be the Real Test

The next big moment comes in March 2027, when the Office for Budget Responsibility releases its updated productivity forecast. That’s when we’ll see whether Reeves’ gamble pays off. If the UK economy grows faster than expected, the tax freeze might look like prudent restraint. If it stalls — as many economists fear — then the public will feel the pinch without any visible tax hike to blame. And that’s the real brilliance — and danger — of this strategy. It shifts blame from politicians to economic forces. It makes people feel like victims of circumstance, not policy.

Why This Matters to You

If you earn over £30,000, you’re already feeling it. If you’re in your 30s or 40s, you’re probably saving for something — a home, a child, retirement. Every pound you can’t shelter in an ISA or contribute to a pension is a pound you’ll have to earn more of just to keep up. And if your salary rises 3% next year? Congratulations. You’ve just been moved into a higher tax bracket. Without a raise. Without a promotion. Just because the government didn’t update a number.