Latest news with #fiscalDrag
Telegraph
a day ago
- Business
- Telegraph
Starmer's legacy: brutal levels of tax on working people
To judge by the hullabaloo being generated within the Parliamentary Labour Party about the Government's rather timid welfare reforms, it seems that most MPs have entirely forgotten the taxpayers who actually foot the bill for all these benefits. Yet the latest figures for the tax year 2025-26 are shocking. More than seven million people are now paying income tax at 40 per cent – the so-called higher rate that was once reserved for the well off. What this means in practice is that a classroom teacher in inner London will, after just six years in the job, almost certainly have reached the higher rate threshold of £50,270. The same applies to countless other ordinary professionals who aren't remotely wealthy. The numbers caught by the fiendish effects of fiscal drag have shot up by two fifths just since 2022-23. This fiscal drag has in part resulted from persistently high inflation. While the Labour Government must share responsibility for that with its Conservative predecessor and, indeed, the Bank of England, it is the Prime Minister and the Chancellor alone who have refused to take account of inflation by raising the higher rate threshold. It is the Labour Party, which still boasts that it represents 'the workers by hand or brain', that has deliberately chosen to fleece them as if they were in the Jeff Bezos league of capitalists. This normalisation of penal levels of taxation on ordinary people may be the most lasting legacy of Sir Keir Starmer and Rachel Reeves, his 'Iron Chancellor '. The Prime Minister has hinted to backbenchers that his welfare reforms would be implemented with 'Labour values of fairness'. This was taken to mean that he is ready to make concessions to avoid defeat. It does not occur to Sir Keir that his 'Labour values' do not seem at all fair to the seven million taxpayers, from young families to pensioners, whose incomes are now being confiscated at rates originally intended only for the well-to-do. Indeed, the more the PM promises to preserve the ever-increasing benefits bill in order to save his own political skin, the less convincing is his claim to protect the interests of the wealth-creators. This Government has become the champion of the takers, not the makers. Whatever grubby deal is done by next Tuesday to keep Sir Keir in Downing Street, we may be sure that an invoice will be sent to the growing legions of those whom His Majesty's Revenue and Customs now deem to be good for a ruinous 40 per cent.
Times
2 days ago
- Business
- Times
An additional 420,000 pensioners set to pay income tax this year
Hundreds of thousands more pensioners will pay income tax in retirement this year as they fall victim to a deep freeze on tax thresholds. About 420,000 more people over state pension age will pay income tax in 2025-26, bringing the total to 8.7 million, according to data from HM Revenue & Customs. The rise is a result of consecutive increases to the state pension and a long-running freeze on income tax thresholds, which began in 2021 but is set to continue until at least 2028. Millions of pensioners and workers have been dragged into a higher tax bracket as their income rises because of the freeze, a process known as fiscal drag. • Two million to be hit by 'stealth tax bombshell' by end of decade David Brooks, the head of policy at the consultancy firm Broadstone, said: 'While the country's demographic shift naturally increases the number of pensioners liable for income tax, fiscal drag is unequivocally pulling hundreds of thousands more into the income tax bracket each year.' The amount of income you can receive each year before paying tax has been stuck at £12,570 since 2021. The full new state pension has increased from £9,332.20 to £11,973 over the same period. This means that those with other sources of income like dividends, rental payments and cash could easily be tipped into paying tax. The state pension is protected by the so-called 'triple lock', which ensures it rises each year by the highest of average earnings growth, inflation, or 2.5 per cent. It was designed to shield pensioners from the rising cost of living, but its success is somewhat of a double-edged sword — the state pension is on track to soon be enough to exceed the 20 per cent basic-rate tax threshold. • Johanna Noble: Tax is a small price to pay for a good state pension The Office for Budget Responsibility has predicted that by April 2027 the full new state pension will be worth £12,885.50 — £315.50 over the £12,570 personal allowance. Pensioners who had paid national insurance contributions for 35 years to qualify for the full state pension would then have to repay 20 per cent of that £315.50, losing £63, according to Quilter, the wealth manager. Last year, the Conservatives pledged a 'triple lock plus', in which the personal allowance for pensioners would rise in line with the highest of earnings, inflation, or 2.5 per cent, mirroring the protection afforded to the state pension. At the time, Labour dismissed the proposal as lacking credibility. More than seven million people are expected to pay the higher rate of income tax, at 40 per cent, this year, up from just over 5.1 million in the 2022-23 tax year. The number of people paying the top rate of tax, 45 per cent, is expected to hit 1.23 million this year, more than double the 570,000 who paid it three years ago. The number of basic-rate taxpayers has risen from 28.8 million to 30.8 million over the same period. • Is Britain a high-tax nation compared with other countries? Neela Chauhan, a partner at the accountancy firm UHY Hacker Young, said: 'Though it might seem equitable for higher earners to be paying more tax, there are real concerns over the impacts of placing an ever higher tax burden on high earners. 'Increasing the tax burden too high could push these individuals to leave the country or deter talented individuals from moving to this country. There are already concerns of a 'brain drain' in the UK.' The Treasury has been approached for comment.
The Guardian
2 days ago
- Business
- The Guardian
Number of higher-rate UK taxpayers expected to hit more than 7m this year
The number of people in the UK paying income tax at the higher rate is expected to increase by 500,000 this tax year, to more than 7 million, according to official figures. Income tax thresholds used to rise in line with inflation but have been frozen at the same level since 2021, a move announced by the then-chancellor, Rishi Sunak. In the 2021-22, 4.4 million people paid tax of 40% on some of their income, the data from HM Revenue & Customs shows. Over the same period the number of people of state pension age paying some income tax has risen by almost 2 million. The freeze on tax thresholds, which was extended until 2028 by the former chancellor Jeremy Hunt, has meant that as wages and pensions have been increased to help people cope with inflation, more have moved into a higher tax bracket - a phenomenon known as fiscal drag. The threshold for the personal allowance – the sum you can earn each year before paying income tax – is set at £12,570. HMRC's figures show there are expected to be 39.1 million people earning above that in the current tax year, with the majority – 30.4 million – paying tax at the basic rate of 20%. The full new state pension now adds up to £11,973 a year, and there are expected to be 8.7 million people of state pension age paying income tax in 2025-26. Laura Suter, thw director of personal finance at the investment platform AJ Bell, said: 'Everyone is caught by frozen tax thresholds, including pensioners and anyone with earnings above the £12,570 personal allowance threshold. However, it is those who drift into higher tax bands as a consequence who feel the most pain.' Thresholds are different in Scotland, but in the rest of the UK, 'once you move over the £50,270 mark, your next pound of earnings is hit with a 40p deduction, rather than the 20p paid by basic-rate taxpayers, meaning you see much less of any salary increases in your payslip at the end of the month', Suter said. 'They now account for almost a fifth of all taxpayers, illustrating that the higher rate of tax, once reserved for those on healthy salaries, is now pretty commonplace.' A government spokesperson said: 'This government inherited the previous government's policy of frozen tax thresholds.' 'At the budget and the spring statement, the chancellor, Rachel Reeves, announced that she would not extend that freeze. We are also protecting payslips for working people by keeping our promise to not raise the basic, higher or additional rates of income tax, employee national insurance or VAT.'
Telegraph
2 days ago
- Business
- Telegraph
Seven million workers dragged into higher income tax bands
Seven million people have been dragged into paying higher rates of income tax as a result of a stealth raid on wages, figures show. Frozen thresholds have forced an extra 520,000 taxpayers into the 40p bracket in the last year, according to estimates by HM Revenue & Customs (HMRC). It brings the total to just over seven million in 2025-26, a 60pc rise from the 4.4 million in 2021-22 when income tax thresholds were first frozen under the Tories. The sharp rise in higher-rate taxpayers comes despite Labour's manifesto pledge not to raise taxes on working people. The number of 45p additional-rate taxpayers has more than doubled from 520,000 to 1.2 million over the same period. The figures also reveal that an extra two million pensioners have been pulled into the tax net in the last four years. Some 8.7 million people aged 66 and over are now paying tax on their income, up by a third in 2021-22. Income tax thresholds, including the £12,570 tax-free 'personal allowance' have been frozen since 2022. Keeping thresholds frozen means earners lose a larger share of their incomes to tax, as inflation pushes up wages in a process known as fiscal drag. Chancellor Rachel Reeves has committed to maintain the freeze until 2028 – the deadline under the Tories. However, there are fears that the Chancellor may choose to extend the freeze beyond this date in a bid to plug gaps in the country's finances. Expectations are mounting that the Chancellor will be forced to raise taxes in the October Budget despite stating that the slew of tax rises last October was a 'once in a generation' event. Labour's winter fuel payment about-turn, a rumoured end of the two-child benefit cap, higher government borrowing costs and a possible productivity downgrade have all piled pressure on Ms Reeves to raise revenue. Jon Greer, head of retirement policy at Quilter, said: 'The sharp rise in the number of people who are state pension age and now paying income tax is a direct consequence of the decision to freeze the personal allowance since 2021 and a textbook example of fiscal drag in action. 'Many of these individuals are not high earners but are simply victims of a frozen threshold in a period of rising prices. For some, it's their first experience of paying income tax in retirement, and it's leading to confusion, frustration, and unexpected bills.' Laura Suter, director of personal finance at AJ Bell said both pensioners and working people were feeling the impact of the stealth tax raid. She added: 'Rising incomes and frozen thresholds mean the taxman is set to rake in an extra £20bn this year, with the total income tax haul set to rise to £323bn. 'In contrast, in the first year of the income tax threshold freeze, the Government collected £245bn in tax. The staggering £78bn climb in the nation's annual income tax bill illustrates the huge impact the tax freeze has had on our finances.' A Treasury spokesperson said 'This Government inherited the previous government's policy of frozen tax thresholds. 'At the Budget and the Spring Statement, the Chancellor announced that we would not extend that freeze. 'We are also protecting payslips for working people by keeping our promise to not raise the basic, higher or additional rates of income tax, employee national insurance or VAT. 'That's the plan for change – protecting people's incomes and putting money into people's pockets.'
The Independent
2 days ago
- Business
- The Independent
More than seven million people estimated to be higher rate taxpayers in 2025-26
More than seven million people are liable for higher rate income tax, marking a jump of nearly two-fifths compared with 2022-23, according to HM Revenue and Customs (HMRC) figures. There are a projected 7.08 million higher rate income tax payers in tax year 2025-26, the revenue body said. This is up from 5.10 million people who were in this bracket in 2022-23. It also marks a 2.65 million increase compared with the 4.43 million higher rate income tax payers in 2021-22. There are also a projected 1.23 million additional rate income tax payers in 2025-26, compared with around 570,000 in 2022-23 and 520,000 in 2021-22. Some 39.10 million people are projected to be income tax payers in 2025-26, up from 34.50 million income tax payers in tax year 2022-23 and 33.00 million in 2021-22. Frozen tax thresholds have pushed people into higher brackets as their pay has increased. Sarah Coles, head of personal finance, Hargreaves Lansdown said: 'Fiscal drag has hauled over six million more people into paying income tax, and 3.36 million more into paying higher or additional rate tax. 'We've had to hand over an extra £89 billion in income tax this year – compared to 2021-22 – as a result. 'It has had a devastating impact on the tax we pay on our earnings, but that's not the end of it, because it also takes a huge chunk out of our savings and investments. It reveals just how much damage is being done to our finances by this horrible stealth tax – and there's plenty more to come. 'Income tax thresholds are set to stay until 2028, but as the debate around the Government finances intensifies, the risk that the freeze remains for even longer can't be ruled out.' Neela Chauhan, a partner at UHY Hacker Young said: 'Though it might seem equitable for higher earners to be paying more tax, there are real concerns over the impacts of placing an ever higher tax burden on high earners.'
