A stealth raid on income tax will bring in an additional £71billion for the Treasury by 2030-31, economists predict.
Almost seven million more people will be dragged into paying income tax than would have been had thresholds risen with inflation since the freeze was introduced five years ago.
And a further six million will be pushed into paying the higher and additional rates as a result of the cash grab, analysis shared with the Daily Mail found.
Thresholds have been frozen since 2021-22, and ex-Chancellor Rachel Reeves announced last year the freeze would remain until 2030-31.
It means that as wages increase, more people have to pay more income tax on their earnings.
Despite Prime Minister Andy Burnham previously suggesting he would look again at the issue, Chancellor John Healey did not act in his Budget on Wednesday.
Analysis of Office for Budget Responsibility (OBR) figures by the Institute for Fiscal Studies (IFS) has found there will be an additional tax revenue of £71billion as a result of the measure.
The IFS said yesterday: 'Relative to thresholds rising with inflation since 2021-22, the OBR forecast expects in 2030-31 there will be an additional 6.75million people brought into paying income tax due to the threshold freezes, an additional 6.03million into paying the higher and additional rates, and additional tax revenue of £71billion.'
Chancellor John Healey did not change the freeze in his latest Budget, despite previous suggestions that the policy could be reconsidered
Labour was on Friday accused of 'hiking taxes by stealth'. Tory Treasury spokesman Gareth Davies said: 'Labour are making as many people as possible pay as much tax as possible, even as families grapple with rising costs at the checkout and soaring energy bills.
'The Government would rather squeeze working people dry than cut the ballooning welfare bill that funds the lifestyles of people who choose not to work.
'Labour's talk of 'breathing space' is just smoke and mirrors – in truth they are hiking taxes by stealth, and sending the tax burden to a record high'.
Mr Davies added: 'The Conservatives are the only party that will cut the welfare bill and cut taxes, backing hard work and aspiration and letting people keep more of what they earn.'
Treasury sources insisted they were raising money in a 'targeted way rather than putting up the big taxes on people's earnings'.
Freezing tax thresholds results in what's known as 'fiscal drag' – where people are pulled into higher tax bands when they get pay rises.
Until 2021, income tax thresholds were typically increased each year in line with inflation. When the then chancellor Rishi Sunak delivered his budget that year he announced that thresholds would be frozen from April 2022 until 2026.
Since then, the freeze has been extended by subsequent governments – and although Mr Healey did not mention it in his Budget, documents show it will continue to 2031.
Everyone has a personal allowance of £12,570, below which their income is not taxed. Income between £12,571 and £50,270 is taxed at the basic rate of 20 per cent if it is on earnings.
Income between £50,271 to £125,140 is charged at the higher 40 per cent, and anything over £125,140 is taxed at the additional rate of 45 per cent.
There are extra charges on savings and property income.
The OBR said that had the personal allowance increased in line with inflation since 2021 and until 2030-31, it would be £4,900 higher – with the threshold for the higher rate to kick in £20,100 higher.
It added that the freezes mean the proportion of taxpayers paying either higher or additional rate tax will have increased from 15 per cent in 2021-22 to 24 per cent in 2030-31.
The freezing of tax thresholds affects lower and middle earners the most, with the impact for a basic rate taxpayer the equivalent of a 4 per cent tax increase.
Between 2021 and next year, basic rate taxpayers will have paid £700 more in tax than if thresholds had gone up in line with inflation, analysis by AJ Bell suggests. By the time the freeze ends in 2031, that figure will have risen to around £960.
The situation is even worse for the higher rate taxpayers, who will have paid as much as £3,500 in extra tax by next year.
Source link
