Tax freeze forecast to cost £430 a year

Freezing the income tax personal allowance and higher rate tax thresholds will cost the average family in England and Wales £430 a year by 2026.

According to a new analysis from the Liberal Democrats, the ‘stealth tax’ measures will raise £10.9 billion for the Treasury.

The personal tax allowance and higher tax thresholds are set to be frozen until 2025/26, resulting in higher income tax payments as wages rise and contributing to the current cost of living squeeze.

The House of Commons Library analysis found that the tax freeze will bring an additional 1.5 million lower earnings into paying income tax by 2026.

A further 1.25 million people are forecast to start paying higher rate income tax due to the frozen threshold.

The research is based on modelling using the latest inflation forecasts from the Office of Budgetary Responsibility.

In response to the forecasts, the Liberal Democrats want the government to abandon their ‘stealth tax raid’, which they say will “clobber families who are already feeling the pinch” due to rising energy bills and price inflation.

Those living in London and the South East are likely to face the most significant tax rises, with an average cost of £500 per household.

An estimated 230,000 more people in the South East will fall into the higher rate income tax bracket, and another 210,000 will start paying income tax, raising a total of £1.9 billion from taxpayers in 2026.

There will be 210,000 additional higher rate taxpayers in London and 155,000 more people paying income tax, with a total tax raise of £1.8 billion.

Across all regions in England and Wales, disposable household incomes are forecast to be 1% lower in 2025/26 than they would have been if there was no freeze to thresholds, a loss of £430 per household.

Christine Jardine MP, the Liberal Democrat Treasury spokesperson, said:

Boris Johnson must drop this unfair stealth tax that will clobber families who are already feeling the pinch.

“People are worried about the rising cost of living and paying their bills this winter. Now they face years of tax rises under a Conservative government that is taking them for granted.

“Many lifelong Conservative voters in Blue Wall areas feel this government no longer represents them. It’s little wonder that so many are now turning to the Liberal Democrats instead.