Jeremy Hunt’s stealth tax raid will leave City workers paying thousands of pounds more per year over the 2020s, new research shows.
Frozen tax thresholds will mean someone who was earning £50,000 in 2021 – and whose salary rose in line with inflation – will pay an extra £14,000 in tax up to 2028 compared to if the thresholds had risen in line with inflation.
According to AJ Bell, someone who earned £100,000 in 2021 will pay an extra £11,047 over the same period because of the frozen thresholds.
The withdrawal of the personal allowance for those earning over £100,000 means employees are less likely to be impacted by frozen tax brackets.
Read more
Spring Budget 2024: Forget a National Insurance cut – a fix on fiscal drag would trap Labour
In April 2021, then-Chancellor Rishi Sunak froze personal tax thresholds. Last week, Jeremy Hunt confirmed that they will remain frozen until 2028, ensuring another massive tax increase over the next parliament.
“The tax rises that happened as a result of the pandemic and the energy shock – these two giant shocks – will stay for their allotted time period,” he told the BBC.
Rachel Reeves has also confirmed that the thresholds will remain frozen for the same length of time.
“I want those tax thresholds to go up so people are not paying so much tax on their income, but unlike the Conservatives, I’m not going to make a promise and a pledge without being able to say where the money is going to come from,” she said last week.
Frozen thresholds force more and more people to pay higher rates of tax as wages climb to match inflation, a phenomenon known as fiscal drag.
The Office for Budget Responsibility (OBR) has estimated frozen thresholds will mean an extra 4m people start paying tax over the period while 2.7m more will move into the higher rate. A further 600,000 will be dragged into the additional rate.
By 2028, the Treasury will be raking in an extra £40bn compared to if the thresholds had risen in line with inflation, the OBR has projected.
This means that despite Hunt knocking 4p off National Insurance, the tax burden is projected to continue rising over the next few years. Taxes as a share of national income are forecast to grow from 36.5 per cent of national income in 2024–25 to 37.1 per cent in 2028–29.
“The Conservatives are effectively giving with one hand by lowering NI and taking away with the other through the stealth tax of frozen thresholds,” Tom Selby, director of public policy at AJ Bell, commented.