About 750,000 people in London and the South East will pay the 40p rate (PA)
(Picture: PA Wire)About 750,000 people in London and the South East are to be dragged into paying the higher rate of income tax, research reveals on Thursday.
They will find themselves paying the 40p rate after Rishi Sunak froze the threshold for paying this levy and as inflation is soaring.
The analysis by the House of Commons Library showed the impact of these two factors will push 370,000 Londoners into paying the higher income tax rate by 2025/26 and 380,000 in the wider South East.
It also highlighted that 280,000 more people in London would be pulled into paying the 20p basic rate of income tax, and 350,000 in the South East, by the four-year threshold freeze.
Leader of the Liberal Democrats Sir Ed Davey, who commissioned the research, said: “People living in London and the commuter belt are facing the brunt of Conservative stealth taxes.”
The Surbiton and Kingston MP added: “Instead of helping with the cost of living emergency, Rishi Sunak is clobbering Londoners with years of unfair tax rises.”
More people are forecast to enter the higher tax rate in London than in the West Midlands, North East and Yorkshire and The Humber combined, according to the analysis.
Nearly four in 10 of those facing being dragged into paying this 40p rate in the UK are in London and the South-East.
However, the Government defended the threshold freezes.
In a speech to the Bright Blue think tank on Wednesday, Treasury minister Lucy Frazer said that the tax burden on individuals was forecast to be the lowest in the G7 (US, UK, Germany, France, Italy, Canada and Japan) which was as “a result of generous allowances on income tax and relatively moderate rates for both income tax and national insurance contributions”.
She added: “We have a highly progressive tax system.” However, she also emphasised: “Having said that, our goal as a government is both to reform and reduce taxes.”
The Government also stressed that “exceptional” levels of borrowing not seen since the Second World War to support jobs and livelihoods through the pandemic meant it had to make tough decisions to repair the public finances, rather than “saddling” future generations with further debt.
The Chancellor, though, has been accused of failing to do enough to help millions with the growing cost-of-living crisis.
Many households have seen their budgets being squeezed by soaring energy bills, inflation, the increase in National Insurance contributions, and higher petrol costs.
Mr Sunak hinted yesterday that there could be further help for families struggling with soaring energy bills in the autumn. In a wide-ranging interview with Mumsnet, he acknowledged people’s concerns over the expected energy price cap rise in October.
“Depending on what happens to bills then, of course, if we need to act and provide support for people we will, I’ve always said that. But it would be silly to do that now,” he said.
The latest hike, which saw the cap on energy bills rise to £1,971 at the beginning of April, is just starting to take effect and is expected to push millions of households into fuel poverty.
As the cost-of-living crisis increases, Mr Sunak said: “I know things are tough right now, of course they are.”
But he pointed to the raising of the NI contribution threshold, 5p cut to fuel duty and a £9 billion package to help people with energy bills.
However, Labour shadow treasury minister Tulip Siddiq said Mr Sunak’s claim that it would be “silly” to act now showed he did not understand the pressures families were under.
“Families are already feeling the cost-of-living crisis, hit by record rises in energy prices, record high petrol prices and staggeringly steep hikes in the cost of food and essentials,” she said.
The HoC Library analysis was based on the Office for Budget Responsibility’s estimate that the freeze on the thresholds would mean two million more higher rate payers and 2.8 million extra basic rate payers.
It used modelling developed by academics and other experts to work out a regional breakdown.
The personal allowance is currently £12,570, after which people start paying income tax, and the research stated it would be £14,640 by 2025/26 if it were to rise with inflation.
