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The True Cost of Rishi’s Great Freeze: How Tax Thresholds Punish Workers

The True Cost of Rishi’s Big Freeze: As inflation soars, the chancellor’s tax thresholds will covertly punish workers

  • Last year, the Chancellor frozen a number of tax exemptions for five years
  • The effects of the freeze are now more severe than initially feared due to rising inflation
  • OBR projects inflation at 8% this fiscal year, 2.4% the year after, and 2% in 2026
  • Here we show how the mix of inflation and frozen allowances will cost the British

Toxic Mixture: Chancellor Rishi Sunak’s treasury will benefit at taxpayer expense

The true cost of the Chancellor’s secret tax crackdown and rising inflation will be exposed today. Last year, Rishi Sunak announced that a number of tax-free allowances and thresholds would be frozen for five years.

The underhanded tax heist that makes the Treasury pocket more when wages rise with inflation is what economists call “fiscal drag.” But the effects of the freeze are now much harsher than initially feared, as inflation has skyrocketed and is expected to rise well above 8 percent this year.

It comes as the Chancellor last week raised the tax threshold on Social Security and also pledged to cut income tax by 1p to £1 in 2024. But today Money Mail reveals how the new toxic mix of inflation and frozen tax breaks will cost Brits.

Analysis, conducted by investment broker Hargreaves Lansdown using figures from the Office for Budget Responsibility (OBR), shows taxpayers will be paying thousands more at the end of the freeze in 2026 – despite the income tax cut.

The OBR projects inflation will reach 8 percent this fiscal year, 2.4 percent the year after, 1.7 percent in 2025, and then 2 percent in 2026.

The spending watchdog has previously said the income tax will bring in an extra £17.5billion a year after the freeze. Inheritance tax is also expected to bring in £8.3bn a year by 2026 – up 36 per cent from this year’s forecast of £6.1bn.

Capital gains tax and pension allowances were also frozen until 2026.

And our figures illustrate how much additional tax individuals will have to pay because thresholds and allowances will not increase in tandem.

Analysis shows that a worker earning £30,000 will pay £351.59 more in income tax each year in 2026, and someone earning £60,000 will shell out £1,905.70 more.

The capital gains freeze will cost an investor with a £15,000 return an extra £229.51 and families could pay £20,732.68 more in inheritance tax on an estate worth £600,000.

Meanwhile, savers who bust the lifetime pension bonus will have to pay an extra £61,182.64 for a £1.2million pension fund.

Rising inflation has already prompted the OBR to revise its October tax revenue estimates.

Income tax will now bring in an additional £4 billion a year through 2026, inheritance tax will bring in an additional £400 million and capital gains will bring in an additional £1.5 billion for the Treasury.

Tom McPhail, director of public affairs at consultancy The Lang Cat, says: “Rishi Sunak is proving to be a fiscal drag king, stealing billions from us thanks to the insidious combination of frozen allowances and rising inflation while trying to disguise himself as such a tax-cutting chancellor.

“His focus is obviously on the general elections expected in 2024, but given the very real and immediate pressures on people’s living standards, they could turn out to be the Emperor’s new clothes.”

Sarah Coles, Personal Finance Analyst at Hargreaves Lansdown, says: “Freezing tax thresholds has always been a nasty smokescreen – but now, with inflation soaring through the roof, it is a smokescreen on steroids.

“At a time when so many people are struggling, it feels particularly unfair that the government is also increasing our tax bills.”

b.wilkinson@dailymail.co.uk

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The True Cost of Rishi’s Great Freeze: How Tax Thresholds Punish Workers

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