Over a million people to be dragged into higher tax bands despite cost of living squeeze

7 January 2022, 06:40 | Updated: 7 January 2022, 12:57

Over one million more people will pay the higher tax rate by 2026, according to new research, leading the Government to be accused of a "stealth tax raid".

The Government's decision to freeze the personal tax allowance and higher rate tax threshold at a time of wage and price inflation will lead to around 1.2 million additional workers seeing their earnings going over the 40 per cent tax threshold, according to analysis by the House of Commons Library.

Almost 1.5 million more people will be brought into paying the basic level of income tax.

The Liberal Democrats, who commissioned the research, called on the Government to drop its "stealth tax raid" that will "clobber families who are already feeling the pinch."

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According to the research, household disposable incomes are expected to be 1 per cent lower by 2026 across all regions than they would be if the Government had not frozen income tax thresholds.

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 freezes to households across the UK, excluding Scotland, will be £10.9 billion in 2025/26, it says.

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Liberal Democrat Treasury spokesperson Christine Jardine MP said that families worried about paying their bills this winter face years of tax rises.

"Boris Johnson must drop this unfair stealth tax that will clobber families who are already feeling the pinch", she 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."

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It comes after Chancellor Rishi Sunak argued it would be irresponsible to "duck difficult decisions" after Commons Leader Jacob Rees-Mogg called for the national insurance hike to be scrapped to relieve financial pressure on households.

Speaking during a visit to a vaccination centre in Haywards Heath, West Sussex, on Thursday, Mr Sunak told broadcasters: "I have enormous respect for all my colleagues and if you take a step back and look back at why we're in this situation, it's because we're facing an unprecedented level of backlogs in the NHS and we as a Government don't think it's acceptable, we don't want families to be waiting years and years to get the treatment they need.

"It's always easy to duck difficult decisions but I don't think that's the responsible thing to do."

Shapps asked whether tax rises should be ditched

The issue of high taxation amid rising living costs has caused a major rift in the Tory party.

It was understood Mr Rees-Mogg told the Chancellor during Wednesday's Cabinet meeting that the National Insurance hike should be scrapped to stem the cost-of-living crisis as inflation and energy bills rise.

And last month Brexit Minister Lord Frost resigned from the Cabinet citing high taxation as one of his major concerns.