The so-called “stealth tax raid” will cost workers £750 a year within the decade, sparking calls to rethink the freeze to the threshold when a person starts paying income tax. A typical full-time earner on a salary of £39,300 will pay £6,095 a year in income tax by 2028, analysis by the House of Commons Library has found.
This is an increase of £750 on how much they currently pay now.
The analysis, commissioned by the Liberal Democrats, comes after the Chancellor Jeremy Hunt announced he would freeze the personal allowance for six years.
He also confirmed he would maintain the higher rate threshold, main National Insurance thresholds and the inheritance tax thresholds for this time, until April 2028.
According to the Telegraph, Sarah Olney, the Lib Dems’ Treasury spokeswoman, said: “Rishi Sunak and Jeremy Hunt are hammering families with years of stealth taxes, just as the cost of living bites.
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“It just shows this Conservative government has completely lost its way. Those in the hard working middle should not be asked to pick up the tab for endless Conservative chaos and incompetence.
“The Liberal Democrats are proud that we raised the personal allowance, giving millions of families a tax cut and taking the lowest earners out of paying income tax altogether. Now this legacy has been trashed by a Conservative chancellor who is hiking people’s taxes to their highest level in over 15 years.”
The personal allowance was increased during the Coalition years, providing a tax cut for millions of people and taking the lowest earners out of paying income tax.
A Treasury spokesman said: “We want to ensure that hard-working families keep more of what they earn, which is why since 2010 we have increased the tax-free allowances for both income tax and National Insurance by more than inflation, roughly doubling them in cash terms to take millions more people out of paying tax altogether.
Income tax rates and personal allowances
Currently, the standard personal allowance is £12,570.
In England, Wales and Northern Ireland, the basic tax rate is 20 percent, applying on taxable income between @ 12,571 and £50,270.
The higher rate, of 40 percent, applies on taxable income from £50,271 to £150,000.
Should anyone earn over £150,000, this portion of taxable income would be subject to the “additional rate” of 45 percent.
Alice Guy, Personal Finance Expert at interactive investor, said: “Raising the headline rate of tax is deeply unpopular, resulting in terrible headlines, bad publicity and the inevitable pressure for the government to do a U-turn. In contrast, fiscal drag is a subtle way of raising taxes, and is much less likely to meet widespread criticism.
“Most of us know the headline rates of tax, but we don’t really look at how much tax we’re paying in total and if it has risen over time.
“We often talk about how many people will be dragged into the higher rate of income tax. But it’s important to remember that fiscal drag affects all of us, even if we don’t change tax band.
“That’s because as our pay rises with inflation, more and more of our pay is taxed and our overall tax burden increases.
“Very low earners and very high earners actually face even bigger tax rises than those on average incomes. That’s because more of their income will be taxed as their pay rises but the basic tax threshold stays the same.”