Hundreds of thousands more people have been dragged into higher tax brackets as a result of the Government’s “stealth tax agenda”.
An additional 450,000 Britons became higher rate taxpayers between 2020/21 and 2021/22 tax years, figures published today show.
This increase was largely due to “wage growth being stronger in the middle to higher incomes”, the Government said.
The higher rate threshold was only raised from £50,000 to £50,270 over this period, which resulted in peoples’ tax liability increasing further.
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Britons are paying more money due to a ‘”stealth tax”
GETTY
In his Autumn Budget 2023 announcement, Mr Hunt confirmed that tax allowances would be frozen until 2028.
Rachael Griffin, a tax and financial planning expert at Quilter, warned the “harsh reality” was thousands of taxpayers are set to pay more in the years to come.
She explained: “Although nominal salaries increasing may seem a good thing, the purchasing power of these wages remains stagnant or even decreases, and individuals are subjected to higher tax rates and a loss of benefits.
“The problem is also evident in the number of additional rate taxpayers, who pay the highest tax rate. They have increased by 87,000 in one year, to 520,000.
“They contribute 36 per cent of the total tax revenue, but they may lose their motivation to earn more if they face a heavier tax burden.”
According to the financial planning expert, the UK’s current tax system is in need of urgent “re-evaluation”.
Ms Griffin added: “The current approach, with frozen income tax thresholds amidst rising inflation and wage growth, seems to increasingly burden the middle and upper-middle classes without necessarily addressing the underlying economic disparities.
“It suggests that the Government needs to reconsider its stance on tax thresholds to ensure that the tax system remains fair, encourages economic ambition, and does not unduly penalise those who are merely trying to keep pace with the cost of living.”
Last year, Jeremy Hunt reiterated the tax thresholds would be frozen until 2028
PA
Despite the Prime Minister and Chancellor Jeremy Hunt reportedly considering more tax cuts, after last month’s National Insurance reduction, the UK’s tax burden is at its highest level since World War II.
This is primarily due to the impact of fiscal drag with income tax thresholds failing to keep pace with inflation or wage growth.
The Chancellor will likely confirm any changes to tax thresholds as part of the Spring Budget on March 6, 2024.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
