Tax  

One in five could pay higher rate tax by 2024-25

This is over a period when the threshold for higher rate income tax will remain frozen at £50,270.

It is estimated that this rapid pay inflation is likely to bring an extra 1.5m people into higher rate tax compared with 2021-22.

Webb added: “There is no doubt that freezing tax allowances and thresholds is the ultimate stealth tax. No minister has to announce a rise in tax rates, but tens of millions of people pay more tax, and millions of those will even be dragged into higher tax bands purely because of wage inflation. 

"This is certainly not a transparent way of raising extra tax revenue.  However, it does mean that millions of people now have a much bigger incentive to put more money into their pensions, potentially enjoying double the rate of tax relief on any contributions."

A Government spokesperson said: “The UK has the highest basic personal tax allowance in the G20 – and maintaining the income tax thresholds is a progressive approach to fund our world leading public services and rebuild the public finances following Covid.

“Our approach ensures that higher earners contribute more – while the vast majority of taxpayers will still pay the basic rate of tax by 2026 and we will save the typical employee over £330 a year by raising the national insurance contribution threshold.”

sonia.rach@ft.com

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