Stealth tax of £25bn in Britain: Freezing of income tax brackets will send huge sums to the treasury due to rising inflation, think tank says
- Usually, tax rate thresholds would rise to account for the impact of inflation
- But Sunak froze the tires for four years in 2021, which will bring huge sums
A stealth tax will cost workers £25bn a year, almost three times more than predicted, a think tank said yesterday.
The income tax bracket freeze introduced in 2021 will net huge amounts due to rising inflation, according to the Resolution Foundation.
Must be fair to the voters
Spokesman Adam Corlett urged politicians to be more honest about their tax and spending policies.
He added: ‘High inflation has pushed the expected revenue from the government’s personal tax threshold freeze to £25bn a year – almost triple what was predicted when the freeze was introduced.’
Normally, tax rate thresholds would increase to account for the impact of inflation. But Rishi Sunak, as chancellor, froze the bands for four years in 2021. And in November, that freeze was extended to 2027/28.
Normally, tax rate thresholds would increase to account for the impact of inflation. But Rishi Sunak, as chancellor, froze the bands for four years in 2021. And in November that freeze was extended to 2027/28
The initial freeze was expected to raise £9 billion a year by the end of the period. But an increase in inflation — which is now over 10 percent — means more workers than expected are being dragged into higher tax brackets.
By 2027/2028, it is estimated that £25 billion a year will flow into the Treasury.
The freeze leaves the threshold for paying the base rate of 20 per cent income tax at £12,570. And the 40 per cent income tax rate will still be levied on incomes over £50,270.
In a further blow to those at the top end of the pay scale, the 45 per cent ‘top-up rate’ threshold will fall from £150,000 to £125,140, while dividend and capital gains tax-free allowances are reduced.
Taken together, the reduction in income tax thresholds and the dividend payment will cost the highest earning 5 per cent of the population an average of £2,000, or 1 per cent of income.
The council’s tax increases will also bite from this month, with the average Band D household facing a 5.1 per cent rise in bills, equivalent to £99.
For some, however, there will be more money, with most benefits and the state pension rising by 10.1 percent.
According to the Resolution Foundation, more than eight million households receiving means-tested benefits will receive increased costs of living worth £900 in 2023/24.
Mr Corlett said: ‘The myriad of tax and benefit changes introduced in April highlight the challenges of such a patchwork of policies, which rely on short-term support schemes, hidden tax increases and an unfair council tax system.
‘Policymakers must be honest with voters about the trade-offs.’
n At the end of 2022, the economy grew by 0.1 percent, according to revised figures. GDP was thought to have stagnated, with no increase in the fourth quarter.
But better-than-expected numbers from telecoms, construction and manufacturing saw output rise marginally, the Office for National Statistics said.
Martin Beck of the EY ITEM Club forecasters said this was the latest in a string of positive surprises and suggests “a welcome degree of resilience despite the pressures of high inflation and expensive energy.”