Millions of workers, savers and pensioners face brutal assault in Budget with Reeves poised for ‘stealth’ raids after ditching ‘up-front’ income tax hike
Millions of workers, savers and pensioners face a brutal attack as Rachel Reeves is set to expand hated ‘secret raids’ in the Budget.
The Chancellor looks set to keep the long-standing freeze on thresholds in place for another two years, despite humiliatingly withdrawing plans to raise income tax.
The policy will deliver net income to the Treasury of more than £8bn a year to fill the funding gap believed to be between £30bn and £40bn.
But this boost to government coffers will come at a huge cost to Britons; More than 10 million people will face paying the highest tax rate by the end of the decade.
A full-time worker earning the minimum wage will be worse off, seeing their annual tax bill rise by £137 under the current policy of increasing thresholds in line with inflation.
For the first time, all pensioners will be taxed on their entire state pension in 2027-28; Thus, the state effectively gives with one hand and takes with the other.
The IFS estimates that extending the freeze on tax thresholds would bring in more than £8bn a year to the Treasury, but would leave almost one in five workers paying higher rates
The Chancellor looks almost certain to keep his long-standing freeze on thresholds in place for another two years, despite humiliatingly withdrawing plans to raise income tax
Allowing inflation and wage increases to erode the thresholds will mean more people on lower incomes will be dragged into the tax system
This chart shows how the actual value of thresholds drops due to freezing
Government sources insisted last week’s extraordinary reversal in income tax rise was because the OBR watchdog’s forecasts were slightly less bleak than expected.
However, Ms Reeves still appears to need to plug the fiscal deficit of up to £40bn on November 26, as she has pledged to rebuild the ‘headroom’ eliminated by scrapping policies such as benefit cuts.
Economists are sounding the alarm that it will now look to a ‘Smorgasbord’ of smaller tax increases to get itself out of trouble. These will almost certainly include a new gambling tax and higher taxes on expensive properties, as well as per-mile charges for electric vehicles.
Treasury sources downplayed the prospect of directly lowering the thresholds but conceded it would still need to use ‘big levers’ to raise money. Final decisions will be made in the coming days.
Meanwhile, suspending the savings allowance could save Ms Reeves billions of pounds more.
This funding has been frozen since it was introduced by then-Chancellor George Osborne in 2016. Basic rate taxpayers can save £1,000 tax-free, while for those at the higher rate this drops to £500.
Top rate taxpayers do not receive any allowances at all.
The Center for Economics and Business Research (CEBR) estimates that freezing savings allowance for the next two years would increase £6.4bn a year by 2027-28.
The rise will be driven by further growth in earnings and savings levels, the think tank told the Sunday Telegraph.
A report published last week by the Institute for Fiscal Studies found that almost one in five taxpayers will be pushed to pay 40 per cent or more in tax on their income.
The fiscal drift will mean people working in middle-class professions such as senior nurses, police officers and teachers will pay higher rates of tax.
The report stated that more minimum wage workers will be attracted to pay taxes due to the freezing of thresholds and significant increases in the minimum wage. And he said the ongoing freeze would mean more taxpayers would qualify for Universal Credit at a time when benefit bills are becoming increasingly unaffordable.
All earners will be affected by an extension freeze, according to IFS
Extending the freeze on thresholds that Rishi Sunak introduced in 2021 for a further two years until April 2030 would save Rishi Sunak £8.3bn that year, according to the think tank.
This comes on top of the £42 billion the policy is expected to raise by 2027-28, when it is due to end.
Just under half of those receiving a full new state pension in 2022-23 are taxpayers, the IFS said.
However, unless there is an exemption, all pensioners will pay tax from 2027-28 and will have to complete tax returns with HMRC.
