The UK government’s six-year freeze to Income Tax and National Insurance thresholds is set to raise £40bn a year by 2028, making it the country’s biggest tax rise on incomes in at least 50 years, according to a new analysis by the Resolution Foundation.
A four-year freeze in personal tax thresholds — the Personal Tax Allowance and Higher Rate Thresholds for Income Tax — was first announced in 2021. At that time, it was forecast to raise £8bn a year once fully rolled-out in 2025-26. Last year, the freeze was extended by a further two years together with the addition of an employer National Insurance threshold freeze.
High inflation has vastly increased the size of this tax rise, the think tank said.
Based on the Bank of England’s latest inflation forecasts, the policy will now raise around £40bn a year by the time it is fully rolled out in 2027-28. Had the government uprated the Personal Tax Allowance with inflation over this period, people would have started paying Income Tax at around £16,200, rather the current threshold of £12,570 which is set remain in place until April 2028. This means an additional £720 in Income Tax for most basic rate taxpayers.
“Abandoning the usual uprating of tax thresholds is a tried and tested way for governments of all stripes to raise revenue in a stealthy way,” said Adam Corlett, principal economist at the Resolution Foundation.
“But it is the far bigger than anticipated scale of the government’s £40bn stealth tax rise that stands out.
“The reality of the largest, and ongoing, tax rise on incomes in at least 50 years is why any talk of pre-election tax cuts will inevitably be seen in the wider context of some far bigger tax rises.”
