Mr Reed said: “We have been through a period of quite severe inflation. The people who are caught in those thresholds now are quite different to what was originally planned.
“The more people who are working who could be made free of income tax, the better, because it encourages work. That has been going in the opposite direction.”
By 2029, an extra 4 million people will be paying income tax compared to in 2023, according to the OBR. A further 3 million people will have moved into the higher rate tax band.
Jeremy Hunt’s National Insurance cut, which kicked in in January, has helped to increase people’s take-home pay, but the Chancellor should go further and readjust the tax bands to account for inflation, Mr Reed said.
“Anything that can give people some more of their hard-earned cash would be welcomed and the thresholds are a good place to start,” he said.
A Treasury spokesman said: “After borrowing £400bn to protect lives and livelihoods throughout the pandemic and Putin’s energy shock, we had to take some difficult decisions to help pay it back.
“However, with inflation more than halved and because of the progress we have made, we have cut taxes for hard working people, saving the average employee £450 a year, and our tax burden remains lower than any major European economy.”
A Department for Work and Pensions spokesman said: “We are clear that migration is not the long-term solution to growing the economy.
“Our welfare reforms are expected to reduce the number of people who would otherwise have been placed on the highest tier of health benefits by 370,000, and our Back to Work Plan will help over a million people start and stay in work.
“This is part of our efforts to increase growth and boost productivity while taking decisive action to drive down the levels of net migration.”