Research commissioned by the Liberal Democrats has suggested that more than one million people will be dragged into the higher rate tax band over the next four years as a result of the Treasury’s decision to freeze income tax thresholds.
Due to the current rapid wage and price inflation, an additional 1.25 million people will be drawn into the 40% tax bracket as a result of the government’s plans to freeze income tax thresholds until 2025/26, analysis by the House of Commons library shows.
Additionally, a further 1.5 million people on low wages will be brought into the basic income tax bracket.
The report uses inflation forecasts from the Office for Budget Responsibility (OBR) to show what the thresholds would be by 2025/26 if they were not frozen. It says that the higher rate threshold would increase from £50,270 to £56,270 and that the personal allowance would increase from £12,570 to £14,070.
As a result, household disposable incomes are expected to be 1% lower by 2026 across all regions because of the freeze on income tax thresholds, the report concludes.