- Today’s September inflation figure would have been used to uprate income tax bands, had they not been frozen
- The Personal Allowance would have been £15,225 from April had tax bands not been frozen since 2021
- Taxpayers would have been able to earn £60,886 before paying higher rate tax from April 2024 without Rishi Sunak’s freeze
- Someone on £50,000 will be paying £13,000 more in tax over the duration of the freeze
Laura Suter, head of personal finance at AJ Bell, comments:
“There’s been lots of talk of how much money the frozen income tax bands is generating for the Government, but little mention of how much it’s cost the average worker. The decision to freeze income tax bands at a time of high inflation and wage growth has been a nice cash cow for Rishi Sunak’s Government, but has left a big dent in many people’s take home pay.
“Fresh estimates from the IFS yesterday show that the stealth tax freeze is set to net government £52bn a year by 2027. But it’s also costing the average worker thousands of pounds in extra tax over the duration of the freeze.
“September’s inflation figure, published today, would usually set the increase for the Personal Allowance and Basic Rate tax band for the following April. Had Rishi Sunak not put tax bands in a deep freeze we’d all be able to earn 6.7% more tax free from April next year and have the same percentage increase in the Basic Rate band, before 40% income tax is due. However, taxpayers will instead face another year with frozen allowances, at a time when inflation is far above the government’s 2% target and wage growth continues to surge ahead.
“Currently the Personal Allowance is frozen at £12,570, but had it increased in line with inflation since April 2021 it would stand at £14,269 for the current 2023/24 tax year. Similarly, the higher-rate threshold has been frozen at £50,270 but would stand at £57,053 today had it increased with inflation. Taking today’s inflation data into account, from April next year these allowances would have risen to £15,225 and £60,886 respectively had they been uprated as normal.
“Based on OBR forecasts, if we look ahead to the end of the freeze in 2027/28, someone would have been able to earn almost £61,500 before hitting the higher rate income tax band – over £11,000 more than the actual limit will be.
“It means that someone who was on the average UK salary of £33,000 at the start of the income tax band freeze will be paying £2,576 more in tax over the entire duration of the freeze, assuming average wage increases during that time. Someone with an income of £50,000 is hit even harder, because previously their wage increases would have remained under the higher-rate band. But the frozen allowances mean that bumper pay growth in recent years results in them being taxed at 40% on a decent wodge of their income. It means they will pay just over £13,000 more in tax over the entire duration of the freeze.”
