Read our latest expert family tax guide talking about Martin Lewis's new campaign to end the potential for a "stealth tax raid" on income tax. The governments proposed plans could cost parents thousands in extra tax charges.
Martin Lewis Pushes for End to “Stealth Tax Raid” on Families
Martin Lewis has warned that the government’s freeze on income tax thresholds is effectively acting as a “stealth tax raid” by the Chancellor, pushing more workers into higher tax bands. The potential impacts for millions of families could cause serious financial harm in the short term and over the next several years as our finances come under more pressure.
The government seeks to raise over £10.4 billion per year for the next 5 years simply by extending a freeze on the higher rate income tax threshold.
Key Points: Martin Lewis pushes to put an end to ‘Stealth Tax Raid’.
- The higher-rate income tax threshold (£50,270) has been frozen since 2021 and is currently scheduled to stay frozen until April 2028.
- Inflation-driven wage rises have already moved hundreds of thousands of people into the 40p band; estimates suggest extending the freeze to 2030 could raise about £10.4bn a year.
- Martin Lewis called the freeze “[Stealth tax] is a deliberate thing to take extra tax from the public through stealth. It would be great for the public to get rid of [it].”
- The effect is uneven across the UK — London and the South East are likely to see larger average losses per taxpayer.
- Parents can take practical steps to limit the impact: use tax-free allowances, review childcare support, adjust pension contributions and use apps to track tax in real time.
This post explains what the freeze and fiscal drag mean for families, how big the impact could be, and practical steps parents can take to protect their household finances.
What is fiscal drag and the income tax threshold freeze?
Fiscal drag happens when tax thresholds are frozen while wages rise with inflation. As salaries increase, more people cross into higher tax brackets even though their real income hasn’t improved. The higher-rate threshold for income tax is currently £50,270. That number has been unchanged since 2021, and the freeze is due to remain until April 2028, with speculation Chancellor Rachel Reeves might extend it to 2030.
Martin Lewis warned delegates that this policy is a quiet way to raise revenue. He said, “Stealth tax” is a deliberate thing to take extra tax from the public through stealth. It would be great for the public to get rid of it.
How could income tax thresholds affect family budgets?
For parents the consequences are direct. Even modest pay rises meant to keep up with inflation can push one or both parents into higher tax bands, reducing take-home pay and squeezing already tight budgets. Key effects include:
- Lower disposable income for bills, groceries and childcare as more of your earnings are taxed at 40p.
- Less headroom for savings, emergency funds or pension top-ups.
- Regional inequality: studies show families in London and the South East face larger average tax increases.
- Increased complexity at tax return time for those with multiple income sources or benefits linked to household income.
Key numbers: Income Tax thresholds for families
HMRC estimates and research from the House of Commons Library (commissioned by the Liberal Democrats) indicate:
- More than 500,000 additional taxpayers moved into the 40p bracket over the last year because of the freeze and inflation.
- Extending the freeze to 2030 could raise roughly £10.4bn a year for the Treasury.
- Over a million taxpayers could be about £285 a year worse off if the freeze continues, and regional averages show Londoners could be around £350 worse off by 2030.
What ministers say about the freeze on income tax
Chancellor Rachel Reeves has not ruled out extending the freeze beyond 2028; she cautioned that future fiscal decisions are being made against difficult global headwinds. As she told BBC Breakfast: “We are at risk of writing a Budget live on air.”
A Treasury spokesperson pushed back against claims families will be unprotected, saying: “At the 2025 Budget and the Spring Statement, the Chancellor announced that we would not extend the tax threshold freeze inherited from the previous government,” the spokesperson said. “We are also protecting payslips for working people by keeping our promise to not raise the basic, higher or additional rates of Income Tax, employee National Insurance or VAT.”
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Steps for parents to save money on tax
While the political debate unfolds, families can take proactive steps to reduce the blow of fiscal drag.
- Check payslips regularly: spot changes in tax code or unexpected deductions early.
- Use tax-free allowances: ensure you’re using the Personal Allowance and, where relevant, Marriage Allowance or transferable allowances.
- Review childcare support: check eligibility for tax-free childcare, employer vouchers or government schemes to cut childcare costs.
- Consider pension contributions — increasing pension contributions can reduce taxable income, though this has long-term implications and affects take-home pay now.
- Look at salary packaging: some employers offer benefits that can be more tax efficient than straight pay.
- Budget for inflation: update household budgets to reflect higher tax bills and rising living costs; prioritise an emergency fund.
- Use tech to stay on top: apps that track tax in real time can help you see the impact of threshold changes on take-home pay.
What are the alternatives, and how can parents save money on income tax?
If you’re worried about an ongoing threshold freeze, there are policy alternatives and individual support routes worth noting:
- Index thresholds to inflation: this would stop fiscal drag by automatically adjusting thresholds each year.
- Targeted support for families: more generous child benefits, tax credits or direct payments could offset increased tax for middle-income households.
- Local support networks: food banks, council benefits advice and community groups can provide short-term relief while you adjust finances.
- Professional advice: a tax adviser or an accountant can identify allowances and reliefs specific to your family circumstances.
Questions from parents: Income Tax threshold freeze
Will my family definitely pay more tax?
Not necessarily, but if your household income increases because of pay rises and thresholds remain frozen, it’s likely more of your earnings will be taxed at a higher rate. Those on incomes close to the current thresholds are most at risk.
How much worse off could we be?
Estimates vary by income and region. Research suggests over a million people could lose on average about £285 a year if the freeze continues, with higher impacts in London and the South East. Your exact figure depends on how close you are to thresholds and how wages move.
Can I do anything before the Budget?
Yes. Check payslips, use tax-free allowances, review childcare help and consider speaking with a financial adviser. Tools like the Pie tax app can give a clearer picture of real-time tax liabilities so you can plan ahead.
Conclusion: What do parents and families need to think about with their income tax?
For parents, the debate over the income tax threshold freeze is not abstract politics — it affects pocket money, childcare choices and the ability to save. Martin Lewis’s criticism of the policy as a “stealth tax” highlights how quietly changing thresholds can erode family budgets. While the Treasury says payslips are being protected, millions have already seen their tax bills rise because of fiscal drag.
Until the government makes a firm decision, the best approach for families is to be proactive: review allowances, check payslips, consider pension and childcare options, and use financial tools to track tax changes in real time. A little preparation now can reduce the shock to household finances if the freeze is extended.
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