- 20% of income taxpayers will be higher rate by 2027-28, according to figures published today by the IFS
- 2.5 million more taxpayers will be brought into higher and additional rates of income tax, including teachers and nurses
- Consumers face a triple whammy of higher taxes, rising prices, and bigger mortgage payments
Laith Khalaf, head of investment analysis, AJ Bell:
“Millions of people will find themselves with a much bigger tax bill in the coming years, thanks to tax thresholds being frozen or cut. Governments often tend to rake in extra coffers from salaries rising faster than tax thresholds, but the current freeze imposed by the Treasury is fiscal drag on steroids. IFS analysis shows that a high proportion of teachers and nurses will be paying higher rate tax by 2028, and that 3.1% of adults will face marginal tax rates of 45% or 60%. That’s before you throw in the weird and wacky tax rates of over 100% which arise as a result of income tax combined with thresholds for childcare. On top of which the government is also slashing the tax-free allowance for dividends and capital gains tax.
“All of this adds up to an unholy cocktail of pressures on households in the midst of an inflationary crisis. Consumers now face a triple whammy of higher taxes, rising prices, and bigger mortgage payments. This all limits their ability to spend money, which has a knock on effect on the economy at large, and is a significant contributing factor to flatlining growth. While inflation and interest rates are hard to mitigate, consumers are not entirely helpless in the face of rising taxes. Judicious use of ISAs and pensions can significantly reduce the tax burden. Bank of England figures show that Cash ISAs saw their biggest ever March inflow this year, which suggests savers have already got the memo.
“With taxes and interest rates rising, clearly the perception will be that the Treasury and the Bank of England are heaping pressure on consumers when they need it least. That’s hard to deny, but the mitigating factor is the government is in a fiscal hole not entirely of its own making. The costs of the pandemic have not disappeared with the vaccine, and since then the energy support scheme has added to the government debt pile. The Treasury faces difficult choices between raising taxes and curtailing spending, or abandoning debt targets, which might make things worse if the market’s reaction to the mini-budget is anything to go by. There is a small glimmer of hope for the Treasury, as borrowing actually came in £13.2 billion lower than expected in 2022-23. If that trend continues, the government may yet have a Hail Mary tax giveaway left in the gameplan.”
