The true cost of the Tories’ tax heist on middle class families


tax raid

The true scale of the Tory stealth tax heist is laid bare today by Telegraph Money analysis of government data.

In 2021, Prime Minister Rishi Sunak froze tax thresholds across the board, before Chancellor Jeremy Hunt extended the deep freeze until 2028.

But rampant inflation and rising wages have seen millions of workers dragged into higher rates of tax.

As a result, this government is on track to be the biggest tax-increasing Parliament since records began, according to the Institute for Fiscal Studies, a think tank, with the nation’s tax burden set to reach a 70-year high.

Today Telegraph Money calls on the Government to end the cynical tax grab at next month’s Spring Budget.

Our investigation reveals that:

  • The freeze will cost two parents each earning £70,000 almost £30,000 in taxes – enough to put two children through a year of nursery.

  • Higher rate taxpayers will bear the brunt of the raid, accounting for nearly two thirds of the extra £36.7bn of income tax raised by 2028.

  • More than 1m workers will be paying income tax at 45p in the pound by 2028 – up from 240,000 when the Tories came to power in 2010.

  • A worker on £50,000 with £150,000 in savings will lose £6,500 due to the freeze on the personal savings allowance.

  • The freeze on inheritance tax thresholds will cost a family with a £1.25m estate an extra £76,700 in tax.

Emily Fielder, of the Adam Smith Institute, a think tank, said: “Fiscal drag is continuing to drag millions of taxpayers into paying higher tax brackets, despite them not making any more money in real terms.

“This stealth tax is perniciously eating into our spending power, impacting both individuals and businesses as a result.”

The Chancellor’s cut to National Insurance in January – which has saved the average worker £450 – is being undermined by frozen thresholds and persistent inflation, she added.

Adam Corlett, of the Resolution Foundation think tank, said: “Further tax cuts are likely in the Spring Budget, but this will remain a tax-raising Parliament, with the six-year freeze to National Insurance and income tax thresholds eventually set to raise around £44bn a year.”

The Chancellor is understood to now be considering a one percentage point reduction in the basic rate of income tax. But analysis by the stockbroker Interactive Investor has shown that even this tax giveaway would not be as impactful as thawing the frozen thresholds.

A cut to the basic rate of income tax would save someone earning £35,000 annually £240. However, if the personal allowance also rose in line with inflation, the same individual would be better off by £408 a year. By comparison, uprating the basic rate income tax threshold to £14,000, factoring in two years’ worth of inflation, would save them £429.

Myron Jobson, of Interactive Investor, said: “While any cut to income tax would be a welcome boost to households, especially after enduring a once-in-a-generation type cost of living crisis, fiscal drag is set to dilute any uplift – whatever form it might take.”

Our analysis shows the freeze will cost two parents each earning £70,000 a total of £29,856 – enough to put two children through a year of nursery. This is the extra tax lost because the income tax thresholds have not been uprated with inflation. If increased in line with the Consumer Prices Index, the higher rate threshold would be just over £57,000 today.

Fiscal tinkering by successive governments has seen more and more people pushed into higher rates of tax. Last year, Mr Hunt lowered the threshold at which the 45pc rate kicks in from £150,000 to £125,140. This decision will bring 400,000 more into the top rate of tax, according to the Office for Budget Responsibility, the Government’s forecaster.

By 2028, 1.3m workers will be paying income tax at the top rate of 45p on the pound – up from 240,000 when David Cameron was elected in 2010.

The Chancellor also chose not to address the 60pc tax trap that comes into effect once workers earn more than £100,000.

Introduced by Alistair Darling in 2009, this sees the personal allowance tapered down by £1 for every £2 earned over £100,000. In real terms this means that for every £100 of pay earned between £100,000 and £125,140, £40 is lost to income tax and £20 through the tapering of the personal allowance.

Nearly two thirds – £23.2bn – of the money raised by freezing the income tax thresholds and lowering the 45pc tax band will be paid by higher and additional rate taxpayers, according to analysis from accountancy firm RSM.

Chris Etherington, of RSM, said: “Tax cuts may be on the way in the upcoming Budget but many taxpayers could still be worse off due to the previous stealth tax measures introduced. A cut to income tax or National Insurance may be eye-catching but it is simply window dressing.

“The real damage has already been done to taxpayers’ pockets by freezing tax allowances and thresholds. It looks like the Chancellor simply cannot afford to reverse these policies and any tax giveaways will just put a plaster over the problem.”

The Telegraph is campaigning to abolish inheritance tax after the frozen thresholds and surging property prices dragged thousands more families into the net.

Chancellor George Osborne introduced the residence nil rate band which gives homeowners an extra £175,000 allowance when passing their main property onto their children.

But this has not been updated since 2020. The £325,000 nil rate band – below which no inheritance tax is due – also has not changed since 2009. Had they been increased with inflation, the residence nil rate band would be worth over £200,000 and the nil rate band nearly £500,000.

More families have been paying the 40pc rate as soaring house prices have pushed many over the frozen thresholds. The Telegraph has been campaigning for the Government to scrap inheritance tax, which is forecast to raise £10bn per year by 2028.

According to our analysis, the stealth tax raid will cost a family with a £1m house, £250,000 in other assets and donating £100,000 to charity, £76,700 this year, rising to just under £93,000 by 2028. This is because more of their estate comes under the scope of inheritance tax.

Growing numbers of people also face paying tax on their savings for the first time due to rising interest rates and frozen thresholds.

Basic rate taxpayers can earn up to £1,000 in interest before having to pay tax at their marginal rate. For higher rate taxpayers the allowance is £500 and additional rate taxpayers get no allowance at all. These thresholds have remained unchanged since 2015. Between then and 2028, a basic rate taxpayer with £150,000 in savings will pay an extra £6,500 in tax because of the freeze. This is assuming their savings account pays a rate in line with the Bank of England’s rate.

John O’Connell, of the TaxPayers’ Alliance, said: “Taxpayers across the country are being squeezed by the stealth raid on their pay rises.

“The Government is draining every last drop from ordinary households by dragging them into paying higher rates of tax in order to fuel Whitehall’s never-ending spending addiction.

“The only way to give hard-pressed Brits the breathing room they need is to cut spending and raise thresholds.”

Julian Jessop, of the Institute of Economic Affairs, said: “There are essentially two ways that the Chancellor could reverse the impact of the freeze on tax thresholds, at least in part.

“One, of course, would be to unfreeze the thresholds. Increasing the personal allowance by 10pc would cost the Treasury about £1bn. Increasing all main allowances, starting and basic rate limits by 10pc would cost around £15bn.

“The other way would be to lower other taxes instead. This was the approach taken in the Autumn Statement when the Chancellor cut NICs.

“An additional 2p cut in the basic rate of income tax would cost about £14bn and might generate some better headlines. However, this would help middle and higher earners more than those on lower incomes who lose most from freezing tax thresholds.”

A spokesman for HM Treasury said: “After borrowing £400bn to protect lives and livelihoods throughout the pandemic and Putin’s energy shock, we had to take some difficult decisions to help pay down the debt.

“However, with inflation more than halved and because of the progress we have made, we have cut taxes for hard working people, saving the average employee £450 a year, and our tax burden remains lower than any major European economy.”


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