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A report commissioned by the Liberal Democrats has found that by 2025-26, more than 750,000 people will be forced into the 40 per cent income tax bracket for the first time.
The research showed that around four in 10 of those who will be paying higher income tax will come from London and the South East of the country. Additionally, another nearly 700,000 people will be pulled into paying the 20 per cent basic rate of income tax by 2025-26.
Rising inflation that presently sits at 7 per cent, and the decision by the Chancellor to freeze income tax bands until 2026 are being cited as the main reasons behind the move of hundreds of thousands into higher tax bracket.
And the majority of those moving into the higher tax brackets will be from London according to the report that was based on Office for Budget Responsibility’s (OBR) March 2022 Economic and fiscal outlook report.
That report predicted the freeze on the thresholds would mean the increase of around 2 million more higher ratepayers and 2.8 million extra basic ratepayers.
A spokesperson from PwC said if the thresholds were to rise with inflation by 2025-26 the Personal Allowance would have reached £14,621, up from the current £12,570, the basic rate would have increased to £58,474 from £51,577, and the higher rate would have hit £174,479 from the current £152,900.
Chancellor Rishi Sunak has defended the threshold freeze; he thought they were a fair way to help solve the problems ahead for most Britons.
“I think, crucially what people need to understand is no one’s take home pay that they have today is affected or lowered by this policy. What it does do is remove the incremental benefit that they might have experienced in the future as inflation fed through to their wages,” he said earlier this year.
“But their current cash take-home pay is not affected. And, crucially, those on higher incomes are affected more by this policy. It’s a very progressive policy.”
In his spring statement the Chancellor said the freezing of thresholds would contribute around £8 billion extra a year in income tax and between 2023-26 the Treasury predicted it will receive an extra £17.4 billion.