Tag Archives: income tax

The Chancellor hopes no one notices. Voters are starting to realise.

There is no getting around it. The NHS and social care need more money – this is the lion’s share of the budget and is where the government is experiencing the greatest growth pressure. Every serious analysis from the IFS, the OBR and the Health Foundation says that demand, staffing pressures and rising clinical complexity make extra funding unavoidable. If we want a system that works, the state will need to raise more revenue.

The question is not whether we need to pay more. The question is how.

The government’s preferred method is to freeze income tax thresholds for year after year, pushing more of people’s wages into taxation without ever having to announce an explicit rise in basic or higher-rate tax. It sounds painless. Nothing changes on the payslip. No parliamentary vote. No headlines. But it is one of the least fair ways possible to raise revenue and it hits ordinary workers far harder than the wealthy.

The Institute for Fiscal Studies has been unusually blunt about this. Their latest analysis of threshold freezes states that the impact is equivalent to raising all income tax rates by 3.5% by 2029. The Chancellor hopes no one notices that she did this, but people are starting to realise because their real living standards are not improving and the tax take continues to rise.

The numbers are stark, according to figures from the IFS. In 2021, around 59% of adults paid basic rate income tax. By 2029, that will be 72%. In 2021, 8% of adults paid higher-rate tax. By 2029, that will more than double to 17%. These are not people suddenly earning more in real terms. They are people whose wages are simply keeping pace with inflation while frozen thresholds quietly shift them into higher bands.

The Chancellor has also found another way to push people into paying more tax. By increasing the minimum wage faster than the personal allowance, she guarantees that even part-time workers are drawn into paying income tax for the first time. The IFS calculates that if the freeze is extended again, a full-time minimum wage worker will pay £137 more per year in tax compared with current policy, and £759 more than if thresholds had risen as normal.