Millions of people will be hit by higher taxes despite the Chancellor’s claim that her Budget would help “working people”.
Income tax thresholds will be frozen until the end of the 2029-20 financial year, dragging more people into higher tax bands.
This is a two-year extension to the existing freeze that began in 2021 and will raise more than £8 billion in tax revenue.
The Budget also raises taxes by amounts rising to £26bn in 2029-30, through this and a host of smaller measures. That is two years longer than planned, as predicted.
Jason Hollands, managing director at wealth management firm Evelyn Partners, said: “This is a massive income tax rise by stealth. The power of this policy to increase the income tax and National Insurance burden over the years is really quite eye-watering.
“At the start of the century, only one in ten taxpayers were subject to higher rate tax. However, we are now in a position where a fifth of taxpayers are paying the two highest rates of tax, which makes a mockery of the idea that these quite onerous marginal rates should be reserved for the nation’s “high earners”. The numbers exposed to the highest rates of tax will soar to nearly a quarter by 2030.”
He added: “While the Chancellor can try to argue otherwise, this is very much an increase in income tax on working people across all income levels, as millions more will be drawn into paying income tax at both the basic rate and the higher bands.
“But as people won’t see an immediate change in their take-home pay and the tax burden just builds over time it is the very definition of a stealth tax.
“Higher rate tax, once the preserve of the wealthy, is going to be the default rate of middle-income salaried roles, most of whom don’t feel comfortably off, never-mind affluent.”
Nigel Green, chief executive of financial advisory firm deVere said the income tax decision means workers will be “locked into relentless fiscal drag and pulls more income into higher bands year after year.
He said that for advisers working with internationally-mobile clients, the trajectory is unmistakable and “is precisely the type of structural change that triggers relocation planning”.
He added: “People who generate significant economic activity can relocate easily. They analyse long-term patterns, not political slogans.
“The consequences extend far beyond high earners. When wealth leaves, investment follows.”
Household gas and electricity costs will be lowered through cuts to green levies on energy bills at a cost of about £2.3bn. Fuel duty will be frozen at its current rate until September 2026.
There will be a new mileage-based charge on electric and plug-in hybrid cars from April 2028 at around half the fuel duty rate paid by drivers of petrol cars (raising £1.4bn)
“In 2028-29, the charge will equal £0.03 per mile for battery electric cars and £0.015 per mile for plug-in hybrid cars, with the rate per mile increasing annually with CPI.”
There will be a new tax on houses worth more than £2m in England, raising £0.4 billion.
The two-child benefit cap has been removed, at a cost of £3bn by 2029-30.
Salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance from April 2029.
The Office for Budget Responsibility’s report on the Budget, which was leaked before the Chancellor spoke, said: “GDP is forecast to grow by 1.5% on average over the forecast, 0.3 percentage points slower than we projected in March.”
It expects inflation to reach 3.5% for this year – that’s slightly higher than the forecaster estimated in March when it predicted a 3.2%. It has also lifted next year’s forecast from 2.1% to 2.5%. The OBR maintains its 2% estimate for 2027 and the following two years.
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