New warning over ‘stealth’ £9bn income tax raid
The government is under fire over its “stealth tax bombshell” as hundreds of thousands of Brits are set to be dragged into higher tax bands by the end of the decade.
As many as 1.9m workers will see their pay fall into higher tax brackets by 2030 as the bands fail to keep pace with inflation, figures commissioned by the Liberal Democrats found, in a move that will hand the government an extra £8.9bn in tax receipts.
The government has frozen the personal allowance and higher rate tax bands since coming into power in July last year, extending a policy first introduced by Rishi Sunak in 2021, and has vowed to continue to do so until at least April 2028.
The freeze in tax bands and allowances means a person earning a minimum wage salary can expect to pay an extra £750 in income tax compared to two years ago, a jump of almost 40 per cent, while a professional in London earning 50 per cent above the median wage will pay an extra £2,700 in income tax, a rise of nearly a quarter.
Workers in London and the south east are likely to be hardest-hit by the bands freeze, paying as much as £3bn in extra taxes between now and the end of the 2029-30 tax year, the analysis found. The real-terms tax hike comes despite Labour’s electoral pledge not to raise taxes on working people.
‘Earnings ripped away’
“During the midst of the worst cost of living crisis for a generation, people are now set to be hammered once again by this stealth tax bombshell,” said Daisy Cooper MP, Lib Dem Treasury spokesperson.
“People should be rewarded for their hard work, not seeing earnings ripped away through these punitive measures.”
The stealth tax hike comes amid growing fears chancellor Rachel Reeves will breach her own fiscal rules amid increased pressure to reverse government spending cuts.
Labour has pledged to row back on cuts to the pensioner winter fuel allowance after a public backlash, and is understood to be scrapping the two-child benefit cap, a move expected to cost the government £3.5bn. The combined measures are likely to eat into the chancellor’s wafer-thin £9.9bn fiscal headroom, raising expectations of compensatory tax rises to balance the books in the Autumn budget.
Uncertainty over future tax rises has harmed British business confidence to a much greater extent than US president Donald Trump’s erratic tariff policy, according to a report by the National Institute of Economic and Social Research.
“Endless speculation about the size of the government’s fiscal head room is entirely self-inflicted. It is the result of arbitrary fiscal rules that have served the country poorly,” the report said.