Millions to have wages ‘cut’ due to big Autumn Statement tax change
MILLIONS of households could be worse off under a huge tax change in today’s Autumn Statement.
Chancellor Jeremy Hunt is set to extend a freeze on income tax and national insurance thresholds until 2028.
The freeze was meant to come to an end in 2026, but extending this will drag millions more into paying a higher tax rate.
That is because inflation and rising wages will mean more workers hit the thresholds, even though they are no better off in real terms.
Thresholds would usually be tweaked to take both of those things into account.
This means someone on the average UK salary of £33,000 paying almost £2,600 more income tax thanks to the freeze.
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And even more money will be added to tax bills when National Insurance thresholds are frozen.
The basic rate of income tax currently kicks in on earnings over £12,571, and the higher rate of 40 per cent at £50,271.
And you will pay National Insurance if you’re over 16 and either:
- An employee earning above £242 a week
- Self employed and making a profit of £6,725
This sneaky stealth tax is expected to bring in £30billion a year by 2026.
A stealth tax is a form a tax collected in a way that isn’t obvious.
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While the government doesn’t change the headline rate, you end up paying more money.
It comes after the government kept a cut in the rate of National Insurance contributions – with the average worker benefitting from a £330 pay boost.
The cancellation of the 1.25 percentage point rise has come into effect on November 6.
The initial rise was part of Prime Minister Rishi Sunak’s fiscal plan while he was Chancellor.
How will the income tax freeze affect me?
Put simply, inflation and pay increases will mean more people being dragged into higher bands.
The UK’s rate of inflation is currently at a 41-year high of 11.1%, while average total pay, including bonuses, increased by 6% from July to September.
This essentially means that with wages steadily climbing, it means millions more people will become higher rate taxpayers and see a portion of their pay disappear.
Someone with the average UK salary of £33,000 will be paying almost £2,600 more income tax due to the freeze – a 10% increase.
Those earning £50,000, and so hovering just under the current higher-rate threshold, will be hit the hardest.
It is estimated that they will be paying £6,570 more in income tax over the entire period of the tax freeze.
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That represents a 17% increase in their income tax bill over that period.
The Chancellor is also set to announce a pay rise for millions on Universal Credit and benefits next year, as well as a raft of cost of living payments.