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.”

    Share Story:

Recent Stories

Helping landlords make their cash work harder
MoneyAge Editor, Adam Cadle, talks to Family Building Society BDMs, Arif Kara and Nathan Waller, about the resilient BTL market, the wide variety of landlords that Family Building Society caters for, and how niche products like an Offset mortgage can help improve cashflow.

An outlook on the BTL market
MoneyAge Editor, Adam Cadle, talks to Landbay senior regional account manager, Alex Witham, about current market sentiment within the BTL space and Landbay’s success in this area

Empowering advisers: A decade of education in Later Life Lending with Air Academy
Michael Griffiths is joined by chairman of Air Club and former founder and CEO of Air, Stuart Wilson, and head of the Air Academy, Daniel Holden, to look back on a decade of business focused learning at the Air Academy.


Subscribe to our newsletter to receive breaking news and other industry announcements by email.

  Please tick here to confirm you are happy to receive third party promotions from carefully selected partners.