The UK Treasury is poised to collect an additional £7 billion annually in income tax revenues than initially anticipated, propelled by static tax thresholds and rising wages, according to recent findings.
The Office for Budget Responsibility (OBR) disclosed on Wednesday that income tax collections, excluding self-assessments, are projected to reach £322 billion by the fiscal year 2029-30, an increase from the £313.8 billion forecasted last October.
This adjustment signifies an average yearly increase of £6.9 billion until the current Parliament concludes. The analysis indicates that due to unaltered tax bands and rising inflation, British workers will incur thousands of pounds in extra income tax over the forthcoming three years.
High-income earners with annual salaries of £100,000 are expected to face an additional tax burden of £2,445 each year until April 2028, a rise from the £2,317 previously projected, based on calculations from Interactive Investor.
Individuals earning £35,000 will pay an extra £845, up from £801, while those on a £20,000 salary will see their tax increase by £282, compared to £267 before.
These projections are based on the OBR’s updated inflation expectations, which have been adjusted upwards since the October budget.
The OBR now anticipates an average inflation rate of 3.2% in 2025, an increase from the previously forecasted 2.6%, with a subsequent reduction to meet the Bank of England’s target of 2% in 2027.
Income tax thresholds will remain fixed until the 2027-28 fiscal year, a policy initiated under the Conservative government.
Rachel Reeves, however, has not dismissed the possibility of extending this freeze, resulting in an increasing number of taxpayers being nudged into higher tax brackets as inflation escalates wages—a phenomenon known as “fiscal drag.”
Furthermore, starting next month, taxpayers will be subjected to a series of tax increases, intensifying the strain on household budgets. These will include rises in council tax, stamp duty, vehicle excise duty, and employer National Insurance contributions.
Despite the pressure, the Chancellor refrained from imposing additional tax hikes in the Spring Statement on Wednesday, following a historic £40bn tax increase in her initial budget last October.
Nevertheless, the OBR has revised its expectations, projecting that Britain’s tax burden will escalate from 35.3% of the GDP to a record high of 37.7% by 2027-28, alongside a reduction in this year’s growth forecast from 2% to 1%.
