Stealth £1,000 tax burden will punish middle classes, says expert, who warns households will feel ‘continuing pain’ over next year
- All households face ‘continuing pain’ amid ‘lost decade for living standards’
- Stealth tax raid will bring £120billion to the Treasury over the next five years
Middle-class earners will be hit by a stealth £1,000 tax raid next year, experts have warned in a grim assessment of the budget.
All households face ‘continuing pain’ amid a ‘lost decade for living standards’ as they are hammered by high prices and weak wage growth, the Institute for Fiscal Studies says (IFS).
The dire official forecast suggests the next two years will be the “worst on record” for household incomes despite hopes for medium-term economic growth.
Public spending plans are expected to be tighter than previously thought, with more money for defense and childcare and Jeremy Hunt expected to find more money for public sector wages.
Paul Johnson, director of the research institute, said yesterday: ‘What households are going to feel over the next year will be continuing pain. Inflation may be down, but prices are still much higher than two years ago. The gains have not caught up.
Public spending plans are expected to be tighter than previously thought with more money for defense and childcare and Jeremy Hunt expected to find more money for public sector pay
The stealth tax raid will bring £120billion into the Treasury over the next five years by taking up to six million more people into higher tranches, in a process known as the tax drag.
The IFS has calculated that if the wage threshold at which workers start paying the 40p income tax rate – currently £50,270 – had risen in line with inflation since 2010, it would now be 56 £680 and next month would rise to £62,410.
Mr Johnson warned: ‘The freeze on income tax and National Insurance contributions, benefits and thresholds will cost most taxpayers £500 next year at the basic rate and £1,000 for most taxpayers at the higher rate.”
He also pointed to figures from the Office for Budget Responsibility (OBR) predicting a considerable fall in the purchasing power of citizens.
The independent forecaster said household incomes will fall 6% this year and next – slightly less than the feared 7% last year, but still the biggest drop since records began in the 1950s .
Mr Johnson said: ‘The OBR may be relatively optimistic about the medium term, but it still thinks these will be the worst two years on record for household incomes.’
“His projections suggest that real household disposable incomes will be no higher in 2027 than they were in 2019 and only slightly higher than in 2017 – a lost decade for living standards. the OBR on the economy may not be widely shared for a little while yet.
Yesterday Shadow Chancellor Rachel Reeves also criticized the growth of stealth taxes. She told MPs: “To be fair, the government has given us some growth. Growing stealth taxes, growing mortgage costs and growing NHS waiting lists. But there is no plan for the future, just a conservative legacy of pain.
The stealth tax raid will net the Treasury £120billion over the next five years by taking up to six million more people into higher brackets
In another grim analysis of a ‘disastrous decade for living standards’, the Resolution Foundation think tank said average household disposable income would be £1,800 higher by 2027-28 if it remained at pre-pandemic growth rates.
He added that each household will pay an additional £4,200 in tax five years from now on the 2019-20 figure, although most departments in Whitehall face cuts of 10% to their budgets.
Chief executive Torsten Bell said: “Step back, the UK’s underlying challenges remain largely unchanged.
“We are investing too little and growing too slowly. The standard of living of our fellow citizens is stagnating. We are asking them to pay more taxes while cutting public services. No budget could turn the tide, but it’s time Britain did.
Asked about the stealth tax raid, the Prime Minister’s official spokesman said: ‘Part of this conversation illustrates that the government is trying to strike a balance. We’ve had comments saying we’re risk averse, comments saying we take too many risks.
“We are supporting households with the cost of living and investing in industries and infrastructure to grow the economy, so we need to find the right balance to reduce debt and restore public finances, especially given the hundreds of billion pounds supplied during Covid. ‘