New research out from the Centre for Economics and Business Research’s Douglas McWilliams, calculates that Chancellor Rishi’s freezing of tax allowances and upper rate thresholds in the March 2021 Budget will, as a result of inflation being much higher than forecast, now mean:
“that by the fiscal year 2025/26 the number of people paying tax, which was 32.2 million in 2021/22, could rise by 5 million and perhaps even more damagingly the number of people paying higher rate tax at 40% will virtually double from 4.1 million to 8.1 million. This is a £40 billion tax rise originally planned to raise £8.2 billion.”
This £40 billion will be in addition to the £20 billion to be raised by NI hikes announced as the Health and Social Care Levy. That hike was voted through Parliament. The impact of unexpectedly high inflation on the freezing of allowances and bands was not voted for, yet it will likely double the impact of the higher NI rate. This is Rishi’s mega-stealth-tax…
The Treasury this afternoon argues that the Osborne-era above-inflation threshold rises mean that even with this freeze, taxpayers will still be ahead:
“We’ve got the most generous basic personal tax allowance in the G20 and maintaining the threshold is progressive and will ensure nobody’s take home pay will be less than it is now in cash terms.”
Take-home pay will of course be less in real terms after inflation, in addition millions of former lower rate taxpayers will now be paying tax at 40%. The threshold freeze will also go a long way to reversing the policy of the coalition government, which took 2 million low-paid taxpayers out of the tax net altogether. How the Treasury reckons bringing the lowest paid into the tax net is progressive is not clear. Guido suspects the Chancellor will eventually use the revenue raised from this stealth tax to cut the NI hike back before the general election. Using a massive stealth tax to finance cutting back taxes the Chancellor raised won’t be clever, it will be bribing us with our own money.