- Jeremy Hunt this morning confirmed that tax thresholds will remain frozen until 2028
- This comes following the Conservatives’ pledge to uprate the personal allowance for pensioners as part of ‘quadruple-lock’ plans
- Swirling personal tax debate set to continue with both Labour and the Conservatives pledging not to raise VAT
- OBR estimates suggest that by 2028-29 the freeze on thresholds will see almost 4 million extra taxpayers
Tom Selby, director of public policy at AJ Bell, comments:
“Working families might understandably feel more than a little aggrieved that, having committed to ending the personal allowance freeze for pensioners, Rishi Sunak and Jeremy Hunt are not making a similar pledge for younger people. If tax thresholds remain frozen until 2028, millions of Brits will be pulled into paying substantially more income tax through ‘fiscal drag’. This works in exactly the opposite direction to the National Insurance reductions announced by the government, not to mention the hints at further National Insurance cuts to come.
“The Conservatives are effectively giving with one hand by lowering NI and taking away with the other through the stealth tax of frozen thresholds. Creating a different personal allowance for pensioners will also complicate the tax system and add unfairness between generations. This all adds up to a pretty incoherent approach to income tax and National Insurance policy which seems to be driven entirely by a desire to win over older voters ahead of the general election.
“The freeze on income tax thresholds will see millions dragged into higher rates of taxation, with the OBR estimating that by 2028-29 the deep freeze on tax thresholds will see almost 4 million extra taxpayers, 2.7 million more moved to the higher rate of income tax, and another 600,000 paying the additional rate. These numbers would be a bit lower if the Conservatives were to win the election and introduce the quadruple lock for pensioners, but crucially working age people would still be left at the mercy of extreme fiscal drag.
“A consequence of frozen thresholds combined with rising wages, the stealth tax increase will see many households pay thousands more in income tax than they would have done had thresholds been indexed in line with inflation. Had the personal allowance, currently frozen at £12,570, been inflation linked since 2021/22 when the freeze was implemented, then it would be forecast to rise to £15,989 by 2028 – nearly £3,500 higher than if the deep freeze remains. On top of this, an inflation-linked higher rate threshold since 2021/22 would see it raised by £13,674 to almost £64,000, again based on the latest inflation forecasts from the OBR.”
Source: OBR, March 2024 Economic and Fiscal Outlook.
