The Great British Tax Ruse - How Stealth Taxes Have Squeezed Incomes Since 2021 - and Why No Major Party Wants to Kill Them

17th January 2026

Since 2021, millions of people in the UK have experienced a quiet but profound shift in their finances. They are earning more on paper, yet feeling poorer in reality. Their payslips show rising salaries, but their bank balances do not stretch as far.

This is not an accident, nor simply the result of inflation. It is the outcome of a deliberate policy choice: the use of stealth taxes, chiefly through frozen tax thresholds and fiscal drag.

What makes this story more striking is not only the scale of the impact, but the political consensus that has emerged around it. Despite loud rhetoric about supporting "working people" and cutting taxes, no major UK party has firmly committed to ending stealth taxation. In practice, it has become the most politically convenient way to raise revenue in modern Britain.

What Stealth Taxes Really Are

A stealth tax is not announced as a tax rise. There is no Budget headline proclaiming that income tax has gone up. Instead, governments freeze allowances and thresholds while wages rise due to inflation or labour shortages. The tax system then does the rest.

The most important freezes since 2021 have been:

The income tax personal allowance, stuck at £12,570

The higher-rate threshold, frozen at £50,270

The £100,000 threshold where the personal allowance begins to be withdrawn

Various National Insurance thresholds (partially offset later by rate cuts)

When inflation surged after the pandemic and wages rose simply to keep pace with prices, these frozen thresholds dragged millions into higher tax bands. People paid more tax without any improvement in real living standards.

This phenomenon — fiscal drag — is not new. What is new is its scale, duration and political normalisation.

How Incomes Have Been Squeezed Since 2021

Lower and middle earners: taxed without feeling richer

For workers on modest incomes, stealth taxes have meant paying tax on income that would previously have been sheltered by rising allowances. Someone earning around £30,000 in 2021 who now earns £34,000 may appear better off, but in reality:

More of their income is taxed because the personal allowance did not rise

Income tax paid has increased faster than take-home pay

Any gains are eroded by inflation, housing costs and council tax

National Insurance rate cuts have helped, but they do not fully offset the effect of frozen income tax thresholds. The result is a quiet transfer of income from households to the Treasury.

Middle earners: pushed into the 40% band

Perhaps the most politically sensitive group affected is middle earners. The frozen higher-rate threshold means:

Many workers now pay 40% tax simply because their wages kept up with inflation

The psychological impact of becoming a “higher-rate taxpayer” has arrived far earlier than in the past

Effective marginal tax rates jump sharply, even without promotions or lifestyle changes

This group has been particularly squeezed because they receive little means-tested support, yet now face significantly higher tax bills.

Higher earners: the £100,000 tax trap expands

The most extreme stealth tax operates between £100,000 and £125,140, where the personal allowance is withdrawn at £1 for every £2 earned. This creates an effective marginal income tax rate of around 60% before National Insurance.

Because this threshold has been frozen:

Far more people are now caught in this “tax trap”

Ordinary professionals — senior teachers, doctors, engineers — are affected

Some workers refuse overtime or pay rises because the tax penalty is so severe

This is one of the clearest examples of stealth taxation reshaping behaviour while remaining largely absent from public debate.

Pensioners and non-workers: an overlooked impact

Stealth taxes have also hit pensioners:

State and private pensions have risen

Tax thresholds have not

Many pensioners now pay income tax for the first time, or at higher rates

This contradicts the popular perception that stealth taxes only affect “working age” earners.

A Political Consensus Built on Silence

Given the breadth of the impact, one might expect fierce political competition to abolish stealth taxes. Instead, the opposite has occurred.

Labour: no rates rises, but no end to fiscal drag

Labour's central tax pledge has been not to raise headline rates of income tax, National Insurance or VAT. Crucially, this does not include thresholds.

Senior Labour figures have repeatedly refused to rule out:

Extending the threshold freeze beyond its scheduled end

Using fiscal drag to fund public services while claiming taxes have not risen

This is a deliberate political strategy: stealth taxes raise large sums while avoiding accusations of breaking manifesto promises.

Conservatives: rhetorical opposition, practical acceptance

The Conservatives have criticised stealth taxes loudly — especially while in opposition — yet:

They introduced and extended many of the freezes

They have prioritised NI rate cuts rather than threshold increases

They have not pledged to restore indexation early

NI cuts are visible and popular. Threshold increases are expensive and permanent. From a Treasury perspective, stealth taxes remain more attractive.

Liberal Democrats: clearer criticism, limited commitments

The Liberal Democrats have been more explicit in calling threshold freezes a stealth tax and have:

Called for greater transparency

Opposed further extensions of freezes

Framed fiscal drag as unfair on working families

However, they have not consistently committed to fully reversing the freezes across the board, partly due to cost constraints.

Reform UK and smaller parties: the exception

Reform UK stands out as one of the few parties to:

Explicitly propose raising tax thresholds

Frame stealth taxes as dishonest taxation

Link fiscal drag to falling living standards

While their proposals are politically controversial, they are unusually direct on this issue.

Devolution: Scotland shows an alternative path

In Scotland, devolved income tax powers have allowed:

Modest threshold increases for lower earners

Partial relief from fiscal drag

This demonstrates that stealth taxes are a choice, not an inevitability.

Why Stealth Taxes Persist

Stealth taxes endure because they solve three political problems at once:

They raise large sums without explicit rate rises

They are poorly understood by the public

Their effects are gradual, diffuse and hard to trace

In short, they are the perfect tax for risk-averse politicians.

The Tax Rise No One Voted For

Since 2021, stealth taxes have:

Reduced real incomes across the earnings spectrum

Pulled millions into higher tax bands

Normalised a historically high tax burden without open debate

Yet despite the scale of the impact, there is no cross-party commitment to end them. The UK’s main political parties have discovered that frozen thresholds offer something too valuable to give up: revenue without accountability.

Until a government is willing to say plainly that tax thresholds should rise with inflation as a matter of principle, the great British tax ruse will continue — quietly, efficiently, and largely unnoticed.