1.2 million people to be driven into higher income tax band

Government plans to freeze income tax thresholds will push more than 1.2 million workers’ earnings above the 40p threshold in the next four years, according to analysis by the House of Commons Library.

These findings, first reported by The Telegraph, have also revealed that the freeze will mean an additional 1.5 million people on low pay will be dragged into paying income tax by 2026.

According to the House of Commons Library, its research is based on modelling using the latest inflation forecasts from the Office for Budget Responsibility.

The figures, which come at a time of growing criticism of the government over the cost of living crisis, have revealed the scale of the cost to families of the decision to freeze the personal tax allowance and higher rate tax threshold until 2025/26 – rather than raise them in line with rising inflation.

Research commissioned by the Liberal Democrats indicated that the decision could cost the average family in England and Wales £430 a year by 2026, or a total of £10.9bn.

Commenting on the House of Commons Library analysis, Canada Life technical director, Andrew Tully, said: “While the Treasury’s plan to freeze income tax thresholds will be felt by over a million workers, there are steps employees can take to mitigate this.

“One solution for those on the higher tax rate tipping point who may have received a pay rise and be unaware of the implications of the frozen bands could be to pay a voluntary additional contribution to their pension – if they can afford it.

“However, given the looming cost of living crisis, this may not be for everyone. This is because  employees are effectively reducing or deferring their salary now for retirement later on – although they can reduce contributions in the future should they need extra income today.”

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