Reeves’s stealth tax raid to push millions of workers into paying higher rates as Treasury rakes in an extra £27.6bn
An additional 2.5 million workers will be pushed into paying the higher 40 per cent income tax rate in 2025/26, as frozen tax thresholds continue to impact millions of British taxpayers.
This means about one-fifth of all taxpayers will be paying either higher or extra taxes.
The freeze on tax thresholds was introduced in 2021 by then-Chancellor Rishi Sunak and was meant to last for four years.
The Conservative Government extended the freeze until 2028, and Labour’s Rachel Reeves kept this policy in place in her October Budget.
The Office for Budget Responsibility (OBR) predicts that 3.5 million workers will start paying income tax in 2025/26 as their earnings go above the basic rate threshold of £12,570.
Another 400,000 people will be pushed into the additional 45 per cent tax rate for earnings above £125,140.
The current higher rate threshold remains at £50,270, significantly below where it would have been if adjusted for inflation since 2021.
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If tax bands had risen with inflation since March 2021, the basic rate would be £15,540, and the higher rate would begin at £62,340.
Sarah Coles, of Hargreaves Lansdown, highlighted how higher-rate tax is no longer reserved for the wealthy elite.
She said: “Gone are the days when being a higher-rate taxpayer was the preserve of the very wealthy – now around a fifth of taxpayers pay higher or additional rates.
“Between us, we’re paying billions more in tax than we did this time last year, and it’s only going to get worse, because those tax thresholds have been frozen until April 2028.”
The freeze has made generating tax-free income an increasingly attractive prospect for many workers, according to Coles.
The freeze policy is projected to generate an additional £27.6billion in tax revenue between 2021 and 2025.
A Treasury spokesman responded to concerns, stating: “We are committed to keeping taxes low for working people, which is why we protected payslips from tax rises and are not extending the freeze on personal tax thresholds past 2027-28.”
The freeze will continue affecting taxpayers until 2028, when thresholds are set to begin rising again, as confirmed in the October budget.