Working families will be more than £1,000 worse off as a result of Rachel Reeves‘ looming stealth tax raid, the Tories warned last night.
The Chancellor’s plan to freeze income tax thresholds for a further two years will cost higher-earning couples as much as £1,300 in tax and National Insurance, analysis has found.
Those dragged into paying the higher rate of tax will then have to pay an extra £900 every single year even if the freeze is ended, according to the Conservatives.
Even retired people could lose £150 over two years, with the full rate of the state pension due to exceed the income tax personal allowance from 2027 onwards.
In a process known as ‘fiscal drag’, more and more workers in jobs such as nursing, policing and teaching will find themselves paying 40 per cent or more tax on their incomes.
Ms Reeves had vowed not to extend the ‘stealth tax’ in her Budget speech last year, admitting it would be a breach of Labour‘s manifesto promises as well as an act that would harm working people.
But it could raise £8 billion by 2030, so she is expected to include it among the plans she will announce next week to fill a £20 billion black hole in the public finances.
The freeze was brought in by Rishi Sunak in 2021 and was already expected to raise £42 billion by 2027-28, when it was due to end.
Working families will be more than £1,000 worse off as a result of Rachel Reeves’ looming stealth tax raid, the Tories warned last night. Pictured: Ms Reeves delivers a pre-budget speech at Downing Street earlier this month
The Chancellor had vowed not to extend the ‘stealth tax’ in her Budget speech last year, admitting it would be a breach of Labour’s manifesto promises. Pictured: Reeves pictured to the left of Labour leader Keir Starmer at the party’s election manifesto unveiling last year
The Institute for Fiscal Studies think-tank last week predicted that as many as ten million Britons will be left paying the 40p tax rate if Ms Reeves freezes the thresholds again.
The Chancellor is expected to go for a ‘smorgasbord’ of smaller tax-raising policies after she last week dramatically abandoned plans for a manifesto-breaking increase in income tax. She did so amid warnings from Labour MPs that it would be electoral suicide.
It was also reported last night that she will impose a ‘milkshake tax’, ending the exemption dairy-based beverages have from tax on sugary drinks.
The ‘sugar tax’ was introduced in 2018 to combat obesity, but milkshakes were left out due to fears that hiking the price would cut children’s calcium intake.
Shadow Chancellor Sir Mel Stride said yesterday: ‘Rachel Reeves could not have been clearer at the Budget last year. She said freezing tax thresholds for longer would hurt working people and would breach Labour’s manifesto.
‘Now Starmer and Reeves refuse to deny they are planning to break that promise – a move that could cost some families over £1,300 in extra tax. Enough is enough.
‘Rachel Reeves has already broken her word repeatedly. If she does so yet again, she has to go.
‘Labour need to show some backbone and control spending, not keep raising taxes to pay for more welfare and more waste.’
A Treasury spokesman said: ‘We do not comment on speculation around changes to tax outside of fiscal events. The Chancellor will deliver a Budget that takes the fair choices to build strong foundations to secure Britain’s future.’
