The Centre for Economics and Business Research calculated that the Chancellor’s decision in his March 2021 Budget will combine with spiking inflation to hit middle earners hard. Inflation hit a record 5.5 percent last month – and is expected to top 7 percent later this year, according to the Bank of England.
Speaking about how this will affect many working people, Douglas McWilliams – from the centre – said: “By the fiscal year 2025/26 the number of people paying tax, which was £32.2 million in 2021/22, could rise by £5million and perhaps even more damagingly the number of people paying higher rate tax at 40 percent will virtually double from £4.1million to £8.1million.
“This is a £40billion tax rise originally planned to raise £8.2billion.”
The tax rise will be in addition to the £20billion to be raised by National Insurance hikes announced as the Health and Social Care Levy.
The threshold freeze will also go a long way to reversing the policy of the coalition government, which took two million low-paid taxpayers out of the tax net altogether.
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He told the Guardian: “[It] will do little to curb the global factors behind the current inflationary surge.
“More needs to be done to limit the unprecedented rise in costs facing businesses, including financial support for those struggling with soaring energy bills and delaying April’s national insurance rise.”
Pat McFadden, the Shadow Chief Secretary to the Treasury, said the latest figures showed the cost of living crisis was not going away any time soon.
He added: “With inflation expected to rise even further, and working people already feeling the crunch, the Tories should have taken action by now.
“Instead, the chancellor’s buy now, pay later scheme on energy bills loads up debt for future years, while his tax rises will only make matters worse.”
The Treasury was approached for comment.