Rachel Reeves’s stealth tax will cost working families more than £1,000 as Chancellor plots ‘smorgasbord’ of smaller increases – and ‘looks to introduce milkshake tax’

Working families will be more than £1,000 worse off as a result of Rachel Reeves’ looming secret tax raid, the Conservatives warned last night.

The Chancellor’s plan to freeze income tax thresholds for another two years will cost high-income couples up to £1,300 in tax and National Insurance, analysis has found.

Those forced to pay the higher tax rate will have to pay an extra £900 every year even if the freeze ends, according to the Conservatives.

Even pensioners could lose £150 over two years, along with the full rate of their state pension, from exceeding their income tax personal allowance from 2027.

In a process known as ‘fiscal drift’, more and more workers in jobs such as nursing, policing and teaching will find themselves paying 40 per cent or more in tax on their income.

Ms Reeves pledged not to extend the ‘privacy tax’ in last year’s Budget speech, admitting it would be a breach of Labour’s manifesto promises and an action that would harm working people.

But it could raise £8bn by 2030, so it is expected to include it in plans it unveils next week to plug the £20bn black hole in the public finances.

The ice cream was introduced by Rishi Sunak in 2021 and was expected to raise £42bn by 2027-28, when it was due to end.

The Chancellor promised in last year’s Budget speech that he would not extend the ‘privacy tax’ and acknowledged this would be a breach of Labour’s manifesto promises. Picture: Reeves is seen to the left of Labor leader Keir Starmer in the party’s election manifesto released last year

The Institute for Fiscal Studies think tank last week predicted that as many as ten million Britons would continue to pay the 40p tax rate if Ms Reeves freezes the thresholds again.

The Chancellor is expected to move towards smaller tax rises after last week dramatically abandoning plans for a manifesto-busting increase in income tax. He did so after warnings from Labor MPs that it would be election suicide.

It was also reported last night that milk-based drinks will implement a ‘milkshake tax’, which will end the tax exemption on sugary drinks.

A ‘sugar tax’ was introduced in 2018 to combat obesity, but milkshakes were left out over fears the price increase would reduce children’s calcium intake.

Shadow Chancellor Sir Mel Stride said yesterday: ‘Rachel Reeves could not have been clearer about the Budget last year. He said a longer freeze on tax thresholds would harm working people and breach Labour’s manifesto.

‘Now Starmer and Reeves refuse to deny they plan to break that promise; It’s a move that could cost some families over £1,300 in extra tax. That’s enough.

‘Rachel Reeves has already broken her promise many times. If he does this one more time, he needs to leave.

‘Labour needs to show some backbone and control spending, not keep raising taxes for more prosperity and more waste.’

A Treasury spokesman said: ‘We do not comment on speculation about tax changes other than financial matters. ‘The Chancellor will deliver a Budget that makes fair choices to create strong foundations to secure Britain’s future.’