Rachel Reeves’ decision to drag millions more people into paying higher rates of tax will “hammer” workers, while pensioners and those on benefits will see their incomes increase, a new analysis has found.
In the Budget, the chancellor controversially froze the income tax and national insurance thresholds until 2031, meaning more staff will be pushed into paying higher taxes as their wages increase through inflation.
At the time, she said she was “asking everyone to make a contribution” to fund public services and investment amid a faltering economy.
A new analysis by the Centre for Policy Studies (CPS) think tank has found that an employee currently earning £50,000 would be £505 worse off in real terms by 2030-31, despite a forecast that their salary will increase by more than £6,000.
But there was a “sunnier” picture for pensioners and those on the standard universal credit, it said.
Pensioners would be at least £306 better off in real terms, thanks to the “triple lock”, which guarantees increases at least in line with inflation, earnings or 2.5 per cent.
For someone on out-of-work benefits, that figure would be £290 because of increases to the standard rate of universal credit, the CPS said in its analysis, which used Office for Budget Responsibility (OBR) inflation and wage growth forecasts.
Many workers “will be worse off by 2030 than they are today, in contrast to those who receive their income from the state, whether via a pension or benefits”.
Daniel Herring, CPS head of economic and fiscal policy, said: “Labour’s tax policy is quietly hammering workers while protecting pensioners and benefit recipients.
“Freezing the personal allowance for income tax will hit everyone, but it’s those who are dragged into higher tax bands who will really suffer, to the point where a worker on £50,000 today is set to actually be poorer in five years’ time, despite getting pay rises.
“Meanwhile, the state pension and universal credit will both be worth more in real terms.
“This is fiscal drag in action, raising taxes for millions of workers through the back door.”
Ms Reeves’ freeze in personal tax thresholds is expected to raise around £23bn for the Exchequer in 2030-31.
A Treasury spokesperson said: “In the budget we increased the national living wage and national minimum wage and took £150 off people’s energy bills, extended the freeze on prescription fees, fuel duty and froze rail fares for the first time in 30 years.
“The fair and necessary decisions we made at the Budget mean we can deliver on the country’s priorities – cut waiting lists, cut debt and borrowing and cut the cost of living.”
Source: UK Politics - www.independent.co.uk
