The UK government is set to implement a £210 billion increase in income tax over the coming years, primarily due to frozen tax thresholds. This policy, which has been extended until 2031, means that as wages rise, more workers will be pushed into higher tax bands without any formal tax rate increase.
This phenomenon, known as fiscal drag, occurs when income tax thresholds remain unchanged while average earnings increase. For instance, the personal allowance and higher-rate thresholds have not been adjusted since 2021, leading to a significant rise in the number of taxpayers in higher brackets. Currently, 10.5 million people are projected to be paying higher rates by 2030-31, a stark increase from just 1.7 million in 1990.
For UK workers, this translates to higher tax bills without a corresponding increase in disposable income. Basic-rate taxpayers could see an additional £961 in taxes, while higher-rate taxpayers may face a £4,808 increase by 2030-31. This stealth tax effectively erodes real income and living standards.
Looking ahead, individuals should prepare for the implications of these frozen thresholds. Financial advisers recommend reassessing savings and investment strategies now, as the next 12 months will be crucial for minimising the impact of these tax changes and adapting to tighter reporting rules.
Sources
gbnews.com
