No changes to income tax bands were announced in Jeremy Hunt’s Autumn Statement, which experts have said could have a knock on effect on other tax cuts.
The Autumn Statement speech and accompanying documents did not feature the topic of income tax bands, meaning for now they will remain frozen until 2027/28 as announced in last year’s Autumn Statement.
With strong wage growth in recent years, experts warn that millions of people will be paying additional tax by the time the bands are reviewed.
Current thresholds in England and Northern Ireland are 20 per cent on earnings between annual earnings of £12,571 and £50,270, 40 per cent between £50,271 and £125,140 and 45 per cent on earnings above £125,140.
Dean Butler, managing director for retail direct at Standard Life said by the end of 2027/28, 2.5mn people are expected to be paying additional tax.
He added: “One of the biggest tax raising measures of recent years hasn’t resulted from a tax hike but instead the decision to freeze income tax bands at 2021/22 levels.
“While wage growth has been strong over the last few years it’s been accompanied by high inflation and frozen tax bands which is adding pressure to household budgets.
“Many lower income pensioners may find they are now paying tax for example as successive increases in the state pension have not been accompanied by increases to the personal allowance.”
Shaun Moore, tax and financial planning expert at Quilter said the benefits of Hunt’s cut to National Insurance contributions were eroded by income tax bands remaining frozen.
He said: “Hunt has given workers a miniscule nibble of carrot with his 2pp cut to National Insurance contributions after they’ve been battered by stick recently.
“The reality is workers are just £2.68 a week better off due to today’s tax ‘giveaway’ than they would have been had tax thresholds not been frozen.
“More money in people’s pockets thanks to tax cuts is no doubt a good thing but this move gives someone on the average salary of £32,963 an extra £8.60 a week due to the NI cut. “But the reality is you only are getting a benefit of around 50 per cent of this due to the frozen tax bands and fiscal drag.”
tara.o'connor@ft.com
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