Stealth raid places £210bn further in taxman’s pocket

Income tax revenues are on course to almost double in a decade as a ‘relentless stealth tax’ hammers millions of workers.

The taxman is set to rake in £430billion from the levy in 2030-31, according to analysis of official forecasts, some £210billion more than the £220billion it raised in 2021-22.

That was when income tax thresholds were frozen by Rishi Sunak, who was Chancellor at the time, in a move that has left millions of workers handing more of their hard-earned cash over to the Exchequer.

The freeze has been extended by Rachel Reeves until 2031 – leaving taxpayers facing a decade of seeing their income eroded by stealth in a phenomenon known as ‘fiscal drag’.

Cash grab: Tax thresholds were frozen by Rishi Sunak (right) when he was Chancellor and that freeze has been extended by Rachel Reeves

Rachael Griffin, a tax and financial planning expert at Quilter, said millions of workers are facing ‘materially higher tax bills with little or no improvement in their standard of living’.

Income tax revenues have already risen by 50 per cent since the freeze began, hitting a total of £330billion last year.

Government figures show the number of basic rate taxpayers has jumped from 27.4m to 30.4m in that time, while the number paying the higher 40p rate has swelled from 4.4m to 7.1m.

And the number hit by the additional rate has more than doubled in number, rising from 520,000 to 1.2m.

Sarah Coles at AJ Bell said: ‘The profound impact of frozen income tax thresholds is clear.

‘It has proven an incredibly effective stealth tax, dipping into our pockets for billions of pounds more in tax every year without the Government ever having to announce a rise in the tax rate.

‘To make matters worse, the freeze is now in place until at least 2031, so there’s no end in sight for this relentless stealth tax.’

Income tax thresholds – the point at which each of the 20p, 40p and 45p rates kick in – are typically meant to rise each year in line with a particular measure such as inflation.

But the personal allowance, at which people start paying the basic rate, has been frozen at £12,570 since 2021, while the higher rate threshold, where 40p tax comes in, has been held at £50,270.

The threshold for the additional 45p rate of income tax was cut from £150,000 to £125,140 in 2023, where it still remains.

The move has dragged millions of workers into higher rates of tax – earning the Chancellor a fortune in the process.

By 2030-31, some 10.5m workers will pay higher rates of tax, according to the Government’s own forecasts, up from just 1.7m in 1990 and 3m in 2010.

AJ Bell estimates that the ten-year freeze will cost a higher rate taxpayer £4,808 in 2030-31 alone while a basic rate taxpayer will hand over an extra £961.

David Little at wealth manager Evelyn Partners said: ‘The powerful tide of fiscal drag is sweeping millions into higher tax brackets.’