Thursday, December 1 2022

Number of people paying top rate soars in stealth tax grab: Threshold freeze extended for another two years, experts say

Tax Trap: Chancellor Jeremy Hunt

The number of workers paying the top tax rate will more than double if, as widely predicted, the threshold freeze is extended for another two years, experts say.

Chancellor Jeremy Hunt and Prime Minister Rishi Sunak are exploring ways to balance the books ahead of a much-anticipated update on the alarming state of public finances next month.

Among the options for filling an estimated £40billion hole in the government’s accounts is a two-year extension of the current freeze on income tax thresholds.

The move could net the Treasury an additional £30bn in ‘stealth’ taxes if the thresholds are frozen until 2027-28.

When Sunak was chancellor, he introduced a four-year freeze on tax thresholds in his spring 2021 statement – ​​setting the threshold at which people pay the 40% rate at £50,271 and the top 45% rate at £150 £000. Personal Allowance – when workers start paying income tax – has also been frozen, at £12,570 from April 2022 to 2025-26.

The move, which went largely unnoticed, was announced before inflation took off and was originally expected to cost taxpayers £8billion. But the real cost has exploded due to rising prices, with inflation now over double digits.

According to the Center for Economics and Business Research (CEBR), extending the freeze for two years will push three million more workers into higher tax brackets.

He estimates that the number of top earners paying the highest tax rate will be 850,000 in 2026-27, up from 400,000 in 2019-20.

More than 100,000 of those high earners will be drawn into the top bracket in the current tax year alone. In a separate analysis, the Institute for Fiscal Studies recently estimated that a two-year threshold freeze could raise an additional £4-5 billion.

Some 7.7million workers could pay the 40p rate by 2025-26, up from 4.6million if there were no freeze and the thresholds rose with inflation, the IFS added .

Hunt’s predecessor, Kwasi Kwarteng, had to drop plans to scrap the 45p top rate after investors spooked off his unfunded tax cuts.

Hunt is also considering windfall taxes on oil companies and banks.

The Treasury declined to comment.

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