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Official figures yesterday revealed that 1.2 million workers are set to be pushed into the 40 percent higher band by 2026, following the Chancellor’s decision to freeze the income tax thresholds.
Average households will have to pay around £430 a year extra in income tax by 2026 due to the measure, data from the House of Commons Library revealed.
It also showed almost 1.5 million low earners will be pushed into the 20 percent basic tax rate that starts at £12,750.
The financial hit comes on top of the current surge in the cost of living and growing Tory backbench discontent about tax rises to pay for the cost of the Treasury’s response to the Covid pandemic – and to raise funds for the NHS and social care system.
Former Cabinet minister John Redwood yesterday warned freezing income tax thresholds would be “another hit to living standards for aspiring people who are trying to make their lives better”.
He said: “I would like us to get back to raising income tax allowances. My overall view is that there is going to be too big a hit to takehome pay in April and they [ministers] have got to do more to ease the squeeze.”
Mr Redwood added that scrapping the planned National Insurance rise in April should be a priority because it “clearly” broke the Tory manifesto pledge not to raise income tax.
Jake Berry, chairman of the Northern Research Group of Tory MPs, urged the Chancellor to “think again” about the freeze.
The analysis by the House of Commons Library shows inflation and rising earnings will mean an extra 1.2 million are pushed into the higher rate tax band, which currently kicks in when a salary reaches £50,070.
If the Chancellor scrapped his freeze and raised the threshold in line with inflation, it would reach £56,270 by 2026. According to the research, household disposable incomes are expected to be one percent lower by 2026 across all regions than they would be if there was no freeze.
London and the South-east are expected to be the hardest hit, with losses of around £500 per household.
In London alone there will be 210,000 additional higher rate taxpayers and 155,000 more people paying income tax.
The total cost of the freeze, to households across the UK, excluding Scotland, will be £10.9billion in 2025-26, it says.
The Lib Dems, who commissioned the research, called on the Government to drop the “stealth tax raid”, saying it will “clobber families who are already feeling the pinch”.
Lib Dem Treasury spokeswoman Christine Jardine MP said: “People are worried about the rising cost of living and paying their bills this winter. Now they face years of tax rises under a Conservative government that is taking them for granted.”
The issue of high taxation and rising living costs has caused a major rift among senior Tories.
At a Cabinet meeting earlier this week, Commons Leader Jacob Rees-Mogg told the Chancellor the NI rise should be scrapped to stem the cost-of-living crisis.
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Last month Brexit Minister Lord Frost resigned from the Cabinet citing high taxation as one of his major concerns.
A Government spokesman said: “Higher earners will continue to contribute more and nobody’s take-home pay will be less than it is now in cash terms.”
Torsten Bell, of the Resolution Foundation think tank, said: “April in particular is going to be a cost-of-living catastrophe, and the year as a whole will be defined by the squeeze.”
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