What is the ‘stealth’ rise in income tax and how will it affect me after the Budget?
How changes to income tax thresholds could impact you
- Sir Keir Starmer refused to rule out freezing income tax thresholds at the Budget, prompting concerns about people paying more tax by “stealth”.
- Freezing tax thresholds can cause “fiscal drag”, where rising average earnings pull more individuals into higher tax brackets.
- The tax-free personal allowance has been frozen at £12,570 since 2021 and is currently scheduled to remain at this level until at least 2028.
- The Institute for Fiscal Studies estimates that these freezes will reduce average household incomes by £1,250 by 2025-26.
- An extension of the freeze by two years could raise an additional £7.5 to £8.3 billion and affect 72.6 per cent of earners by 2029/30.