Rishi Sunak’s government is responsible for the biggest income tax rise for decades in a stealth move that will raise £40bn a year, according to new analysis.
Taxpayers in the higher bracket will be handing over £3,700 a year more in tax as a result of a six-year freeze to income tax thresholds by 2027-28, the Resolution Foundation calculated.
In findings that are likely to anger Conservatives pressing Rishi Sunak to cut taxes, the thinktank found that it will have been Britain’s biggest tax rise in at least 50 years by the time the freeze is fully rolled out.
“Abandoning the usual uprating of tax thresholds [in line with inflation] 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 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.”
The findings come days after more than 30 Tory MPs signed a pledge not to vote for any more tax rises.
Sunak has been facing accusations this year of using a “stealth tax” on incomes that would bring in more than double the amount he budgeted for, as the cost of living rose at the fastest rate for three decades.
The four-year freeze in personal tax thresholds – the personal tax allowance and higher rate thresholds for income tax – was first announced in the 2021 budget when Sunak was chancellor.
It was forecast then to raise £8bn a year once fully rolled-out in 2025-26. This was supplemented by a two-year extension of the policy in last year’s autumn statement through to 2027-28, and the addition of a freeze to employers’ national insurance thresholds.
However, the speed of inflation in recent times has “vastly increased” the size of this tax rise, said Resolution, which focuses on improving living standards for those on low to middle incomes.
At the time of this year’s budget in March, the policy was to raise £30bn in 2027-28. But on the basis of the Bank of England’s latest inflation forecasts, the Foundation calculated that the policy would now raise £40bn a year.
The thinktank said people would have started paying income tax at about £16,200 had the personal tax allowance been increased at the same rate as inflation over this period, rather the current threshold of £12,570, which will remain at this level until April 2028
A spokesperson for the Treasury said: “Our tax burden remains lower than any major European economy, despite the difficult decisions we’ve had to make to restore public finances after the dual shocks of the pandemic and Putin’s illegal invasion of Ukraine.
“Driving down inflation is the most effective tax cut we can deliver right now, and we are sticking to our plan to halve it, rather than making it worse by borrowing money to fund tax cuts.”
They added three million people had been taken out of paying tax altogether since 2010 through raising personal thresholds, and the chancellor had said he wants to lower the tax burden further.
