Warning 1.3m more people could pay higher income tax rate after Reeves Budget
1.3 million people would be dragged into paying the higher 40p tax rate if Rachel Reeves freezes the threshold again as expected, new research has suggested.
The chancellor is now believed to be ready to break his party’s manifesto promise not to increase income tax, which critics have described as a “stealth tax”, with a new freeze on tax rates when they come into effect.
It comes as Ms Reeves is set to confirm pensioners will benefit from a £550 boost to the state pension, cutting inflation by 2.5 per cent, as the government maintains the triple lock despite growing pressures on its finances.
But there will be bad news for workers, according to research revealed by the Liberal Democrats from the House of Commons library that a further 1.3 million people will pay a 40p higher rate as a result of freezing the bands until 2029/30.
According to the Liberal Democrats, this will take the total figure dragged to 9 million by the 40p rate due to the current level being frozen on earnings of £50,270 and above.
Analysis shows the total hidden tax bomb will reach £55.9bn a year by 2029-30, £7bn of which will come from Labor and the rest from the Conservatives.
Liberal Democrat Treasury spokeswoman Daisy Cooper said: “9 million people are now expected to be affected by the Tory-Labour secret tax planting.
“Rachel Reeves once accused the Conservatives of ‘picking the pockets’ of working people by freezing tax thresholds – now Labor plans to do exactly the same. This is hypocrisy. When the two major parties are squabbling, it’s ordinary Brits who have to foot the bill.”
“Families up and down the country are tired of being milked of their hard-earned money. The Liberal Democrats will grow the economy and put money back into people’s pockets with our plan to cut energy bills, save high streets and rebuild trade with Europe.”
Last year Ms Reeves ruled out extending the freeze on income tax rates, claiming it would breach Labour’s manifesto promise not to increase income tax, VAT or workers’ national insurance.
But with a black hole in her spending of £20bn or more, Ms Reeves is believed to have little choice, although she has already pivoted to plans to increase the amount people pay.
Ms Reeves confirmed she would stick to the triple lock guarantee for state pensions; This guarantee will be increased by the highest inflation rate or by 2.5 percent if it is higher.
The policy was first introduced by David Cameron’s government in 2010 and has been a permanent part of the Budget ever since.
The Chancellor was under pressure to rethink the issue to plug the financial black hole in the repatriation plans. But the move means the state pensions of 13 million pensioners will rise to just over £240 a week.
This is an increase of over £550 per year; an extra £120 over what it would have been if it had been increased by inflation alone.
Ms Reeves said: “Whether it’s our commitment to a triple lockdown or rebuilding our NHS to reduce waiting lists, we’re supporting retirees to give them the retirement security they deserve.
“This week in the Budget I will explain how we will hold fair elections to deliver on the country’s priorities of reducing NHS waiting lists, reducing the national debt and reducing the cost of living.”
The Independent asked Ms Reeves’ office to respond to the Liberal Democrats’ income tax figures.
