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Stealth income tax raid

15 Mar 2021

The chancellor said action was necessary to begin fixing the public finances, which have been ravaged by the coronavirus pandemic.

Sunak kept the promise in the Conservative party 2019 manifesto not to raise income tax, national insurance or VAT. But he announced he would freeze the thresholds at which the basic and higher rates of income tax are paid from April 2022 to April 2026, in a move that is likely to hit more than 2m people.

The changes will bring 1.3m individuals into the income tax net by 2025-6 and lift 1m taxpayers into the higher tax bracket, according to the government’s Office for Budget Responsibility. Under the Budget plans, the Income Tax personal allowance - which rose dramatically under the Tories and Lib Dems - will rise slightly in April but then be frozen at £12,570 until 2025/26. So will the 40p tax rate threshold of £50,270. The freeze will only cost low earners around £13 in lost tax breaks in its first year but will pile up as the cumulative impact mounts. They go from raising £1.6bn for the Treasury in 2022-23, to £8.2bn in single year in 2025-26.

The IFS think tank warned the UK could have more than 5million people in the 40p tax band by 2025 due to the freezes - up from 4.1million now and 3million in 2010. Meanwhile financial expert Sir Steve Webb has warned hundreds of thousands of families could lose their child benefit by 2025 as a threshold for starting to pay it back in tax remains at £50,000.