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Concerns over the impact of a ‘stealth tax’ have been highlighted as the chancellor confirms inflation busting rise in the state pension
David MaddoxPolitical EditorSunday 23 November 2025 22:30 GMTComments
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New research has suggested that 1.3 million more people will be dragged into paying the higher 40p tax rate if Rachel Reeves, as expected, freezes the threshold again.
The chancellor is now widely believed to be ready to break her party’s manifesto promise on not raising income tax with what critics describe as “a stealth tax” on earners with another freeze in the point that tax rates start to apply.
It comes as Ms Reeves is set to confirm that pensioners will benefit from a £550 rise in the state pension with an inflation busting increase of 2.5 per cent as she maintains the triple lock despite growing pressures on the government finances.
open image in galleryChancellor of Exchequer Rachel Reeves will finally unveil her Budget on Wednesday (Paul Grover/Daily Telegraph/PA) (PA Wire)However, there will be bad news for working people according to research revealed by the Lib Dems from the House of Commons library which shows that 1.3 million more will pay the 40p higher rate as a result of the expected freeze in the bands to 2029/30.
According to the Lib Dems this will increase the overall number dragged into the 40p rate to 9 million since the current level was frozen at earnings of £50,270 and above.
The analysis shows that the total stealth tax bombshell will reach £55.9 billion a year by 2029-30, of which £7 billion will be due to Labour, with the rest having been caused by the Conservatives.
Liberal Democrat Treasury spokesperson Daisy Cooper said: “A staggering 9 million people are now set to be hit by the Conservative–Labour stealth tax stitch-up.
“Rachel Reeves once accused the Conservatives of ‘picking the pockets’ of working people by freezing tax thresholds — now Labour plans to do exactly the same. That’s rank hypocrisy. While the two big parties squabble, it’s ordinary Brits who are left footing the bill.
“Families across the country are fed up with being milked for their hard-earned cash. The Liberal Democrats would grow the economy and put money back in people’s pockets with our plan to cut energy bills, rescue high streets and rebuild trade with Europe.”
Last year Ms Reeves declined to extend the freeze on the income tax rates because she claimed it would breach Labour’s manifesto promise of not raising income tax, VAT or employee national insurance.
open image in galleryDeputy leader of the Liberal Democrats Daisy Cooper. Her party has warned more than a million extra people will be dragged into higher rate income tax (PA Wire)But with a black hole in her spending of £20bn or more, Ms Reeves is believed to have little choice although she has already U-turned on plans to increase the amount people pay.
Ms Reeves has confirmed she will stick to the triple lock guarantee for the state pension which is to increase it by the highest rate of inflation or 2.5 per cent if that is higher.
The policy was first introduced by David Cameron’s government in 2010 and has been a fixture of Budget’s since.
The chancellor had been under pressure to reconsider it to close the financial black hole in her sending plans. But the move means that 13 million pensioners are set to see their state pension increase to just over £240 a week.
This is an increase worth over £550 a year, an extra £120 compared to what it would have been if it had been uprated only by inflation.
Ms Reeves said: “Whether it’s our commitment to the triple lock or to rebuilding our NHS to cut waiting lists, we’re supporting pensioners to give them the security in retirement they deserve.
“At the Budget this week I will set out how we will take the fair choices to deliver on the country's priorities to cut NHS waiting lists, cut national debt and cut the cost of living.”
The Independent asked Ms Reeves’ office for a response to the Lib Dems figures on income tax.
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