Stealth income tax hike will hit millions of over 60s
Millions more Brits, including a significant percentage of over 60s, will be dragged into paying income tax in the coming months as Rachel Reeves squeezes the spending powers of lower earners with a freeze on tax bands.
Official data suggests that around 11m Brits will begin paying the basic rate of income tax by 2028. People start paying 20 per cent on incomes between £12,571 and £50,270.
The majority of taxpayers set to be affected are over 60, indicating that pension recipients may have to give up portions of their retirement income.
The tax burden is projected to soar to a share of nearly 38 per cent of the UK’s GDP, a post-war peak, with no signs of it coming down in the near term under the Labour government.
The Office for Budget Responsibility (OBR), the fiscal watchdog, has also said that the rise in tax receipts via income tax – which could reach £322bn by 2030 – will trump any percentage increase seen in other levies such as national insurance contributions.
The data, which was obtained via a Freedom of Information request to HMRC, showed that nearly 18m more people would be paying income tax in the period between 2022 and 2028.
Some 1.4m people will also slip into the highest rate of 45 per cent, which captures people earning more than £125,140 a year.
The financial advisory firm Quilter, which filed the FOI request, said individuals and firms would be exploring ways to “mitigate their tax burden” as costs continue to soar.
“The lengthy freeze is resulting in a significant tax rise by stealth,” said Quilter expert Rachael Griffin.
“As the state pension rises while the personal allowance remains stagnant, many pensioners will soon find themselves having to pay back a proportion of their state pension.”
Chancellor Rachel Reeves last year vowed not to put up taxes for workers, though the band freezes represent a real-terms tax rise for most Brits.
Reeves said at the last Autumn Budget that a freeze on thresholds would not be extended beyond April 2028.
City analysts believe that Reeves will have to raise taxes in the autumn in order to rebuild her headroom, which is likely to be depleted amid high borrowing costs and low growth.
Leading economist Paul Johnson of the Institute for Fiscal Studies suggested in a Times column that Reeves should be bolder and raise the rate of income tax.