A million more Britons face increased income tax burdens due to frozen thresholds, according to new analysis. This situation, often referred to as a 'stealth tax,' has led to confusion and debate regarding potential government intervention. The TaxPayers' Alliance reports that half a million workers will pay the basic rate of income tax for the first time this year as their earnings surpass the £12,750 threshold. Additionally, an estimated 410,000 individuals will be moved into the higher rate tax band in 2026-27, with another 70,000 falling into the top rate.
On average, taxpayers are projected to pay £1,040 more in income tax this financial year compared to the 2023-24 period. The total income tax liability for the current financial year is estimated to reach £347 billion, an increase of £43 billion since the current government took power. John O'Connell, chief executive of the TaxPayers' Alliance, stated that freezing thresholds allows ministers to collect billions without explicitly raising taxes, affecting workers, pensioners, and families.
Concerns have been raised about the personal allowance, which has remained static for five years and is scheduled to stay that way until 2031. Prime Minister Andy Burnham has indicated that the issue of the personal allowance has been a frequent complaint from voters. However, his stance on potentially unfreezing the threshold has appeared to shift. Initially, his allies suggested there was no commitment to change it, a move that experts claimed could cost up to £9 billion annually if made permanent. Subsequently, Burnham suggested the matter would be reviewed, but not until the autumn budget.
Shadow Chancellor Sir Mel Stride criticized the current approach, suggesting that a lack of a comprehensive plan for government is leading to increased borrowing and higher taxes. He stated that commitments made so far do not align with the government's objectives, particularly regarding welfare spending.