More than nine million workers are facing a £40billion stealth tax bombshell, The Mail on Sunday can reveal.
Exclusive research by the Centre for Economics and Business Research shows that five million lower-paid workers who currently pay no income tax will be pulled into the net over the next four years if inflation remains high.
They will be forced to pay tax at 20 per cent on a slice of their earnings. This is due to a freeze on personal allowances that was quietly pushed through by Chancellor Rishi Sunak.
And around four million more Britons will be dragged into the 40 per cent higher rate tax band as a result.
There has been little outcry over Sunak’s move, even though it will result in higher tax bills for millions. The Chancellor imposed the draconian measure in March last year, before the recent rise in inflation, which has soared to 5.5 per cent – its highest for 30 years.
But the CEBR warns the pain will be significantly worse than originally thought, due to the current inflationary surge.
CEBR deputy chairman Douglas McWilliams said: ‘This is a £40billion tax rise originally planned to raise £8.2billion. It is absurd. This stealth tax rise should be reversed.’
Despite its painful effects, the big freeze has been overshadowed by Sunak’s announcement in September of a 1.25 percentage point increase in National Insurance contributions – equivalent to an approximate rise in NI payments of 10 per cent for those on average earnings.
But economists warn that the clampdown on personal allowances and tax thresholds is likely to cost Britons much more than the NI hike. McWilliams said the revenue likely to be raised is ‘twice as large as the £20billion to be raised by NI rises.’ He added that at least the latter was announced and voted through Parliament. ‘The impact of unexpected (at least by the Treasury) inflation on the freezing of allowances and bands was not voted for,’ he said.
As a result of the frozen allowances, millions of workers will face a ‘double squeeze’ as they are pushed into a higher tax band at the same time as the NI increase bites, along with rocketing household bills. In last March’s Budget, Sunak decreed that personal income tax allowances and thresholds will remain at 2021-22 levels, up to and including the 2025-26 tax year.