More than 1.3 million workers could see hundreds of pounds wiped from their pay packets each year if Rachel Reeves presses ahead with a major tax freeze.
The average worker could see £285 wiped from their pay packet by the end of the decade under the 'stealth tax' Ms Reeves is expected to confirm in November’s Budget.
The findings, commissioned by the Liberal Democrats and produced by the House of Commons Library, reveal that prolonging the current freeze on income tax thresholds beyond its planned April 2028 end date would drag millions into higher tax bands.
Last year's Budget Ms Reeves confirm that both the personal allowance and the higher rate of income tax would remain frozen until April 2028, continuing a policy first introduced by the Conservatives in 2021.
Although she previously pledged to "protect working people" by lifting the freeze after this date, the Chancellor is now widely expected to push it out even further in a bid to plug a £40billion gap in the public finances. However Ms Reeves has repeatedly avoided recommitting to an end date.
Keeping thresholds frozen until 2030 would raise more than £10billion for the Treasury by dragging more earners into higher tax brackets.
But it would also intensify criticism that Ms Reeves is breaking Labour's promise not to raise taxes on working households and to safeguard people’s take-home pay.
People in London would be hit hardest under the proposed extension, with around 170,000 Londoners facing average extra tax bills of £350 by the end of the decade.
In the South East, a further 200,000 people would see their annual payments rise by about £320.
These regional disparities reflect the higher average wages in some parts of the country, which would pull more earners into higher tax brackets if allowances remain frozen.
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Rachel Reeves's Budget stealth tax raid will cost millions of workers £285 a year
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If thresholds had risen in line with inflation as previously expected, the personal allowance would have reached £13,080 by 2029-30, instead of being stuck at £12,570. The higher-rate threshold would have increased to £52,380, rather than staying frozen at £50,270.
Liberal Democrat leader Sir Ed Davey has called on the Chancellor to honour her pledge not to extend the freeze.
He said: "Rachel Reeves must stick to her word and rule out extending these stealth taxes ahead of the Budget. We must draw a line in the sand."
He criticised the potential move as unfair to taxpayers who would bear the cost of previous economic mismanagement. "To ask people to fork out again for the Conservatives' economic mismanagement and this Labour Government's failure to clean it up is simply wrong," Mr Davey said.
Experts believe tax rises are inevitable in Autumn Budget | GETTYThe Liberal Democrat leader accused Labour of mimicking Conservative fiscal strategies rather than delivering promised change. "This government needs to be tearing up the Conservatives' economic playbook, not copying it," he added.
The Treasury has defended the potential policy shift, emphasising that economic growth remains their primary method for improving public finances.
A spokesperson stated: "The best way to strengthen public finances is by growing the economy, which is our focus."
These reforms are projected to boost the economy by £6.8billion whilst reducing borrowing by £3.4billion
| GETTYOfficials highlighted that fiscal measures aren't the sole approach to strengthening government finances, pointing to planning reforms as an example.
These reforms are projected to boost the economy by £6.8billion whilst reducing borrowing by £3.4billion.
The Treasury maintained its stance on protecting workers' incomes, with the spokesperson adding: "We are committed to keeping taxes for working people as low as possible."