Government extends income tax and National Insurance threshold freeze by three years

The government confirmed in the Budget on Wednesday 26 November 2025 that it will extend the freeze on income tax and National Insurance contribution (NIC) thresholds for an additional three years¹. The current freeze, introduced by the previous government, had been due to end in April 2028¹. The extension takes the freeze on income tax thresholds to 2031².

Freezing personal tax thresholds means people pay more tax than they would if thresholds rose with inflation¹. As wages increase over time, more of someone's income becomes taxable, whether at basic or higher rates, a effect known as fiscal drag¹. The Institute for Fiscal Studies said extending the freeze on NICs thresholds "would increase NICs, breaking Labour's manifesto pledge"¹, and in its initial response to the Budget said: "Because it includes a freeze in National Insurance thresholds, it also breaches the government's manifesto tax promise not to increase National Insurance"¹.

Labour's 2024 election manifesto said: "Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT"¹. At last year's Budget the chancellor said: "I am keeping every single promise on tax that I made in our manifesto, so there will be no extension of the freeze in income tax and national insurance thresholds"¹. In her 2025 Budget speech she said: "I know that maintaining these thresholds is a decision that will affect working people. I said that last year and I won't pretend otherwise now"¹. After the Budget she told Sky News that "in the manifesto we were very clear it was the rates of income tax and National Insurance and VAT", while acknowledging the freeze extension was "asking ordinary people to pay a little bit more"¹. At the end of her Budget speech she claimed to have kept "every single one" of Labour's manifesto commitments¹.

Full Fact notes that the manifesto wording on income tax applies to "rates", for "working people" at least, and does not explicitly mention the thresholds at which rates apply, while the commitment on National Insurance is less specific and does not appear to clearly relate only to rates¹. The Treasury did not offer any official comment when asked¹.

Other Budget measures reported include a reduction in the cash ISA allowance to £12,000 from April 2027, with the full £20,000 allowance remaining but £8,000 designated exclusively for investment purposes, which does not apply to those over 65². Salary sacrifice pension contributions above £2,000 face National Insurance from April 2029². Dividend tax rates rise by two percentage points across the board from April 2026². The pension tax-free lump sum remains untouched².

Why it matters for households

Because the thresholds at which income tax and National Insurance become payable stay at their current levels until 2031, wage growth pushes more of a person's pay into tax. Someone whose pay rises in line with inflation can find a larger share of it taxed at the basic or higher rate without any change to the headline rates¹. The extension runs for three years beyond the previously scheduled end date of April 2028¹. Separately, the cap on NICs-exempt salary sacrifice pension contributions takes effect from April 2029, and the dividend tax increase applies from April 2026². The cash ISA change takes effect from April 2027².

What happens next

The threshold freeze extension runs to 2031². The dividend tax change takes effect from April 2026, the cash ISA allowance change from April 2027, and the National Insurance treatment of salary sacrifice pension contributions above £2,000 from April 2029². Full Fact said it had contacted the Labour party for comment, and that the Treasury did not offer any official comment when asked¹.