The 'hidden tax rise' in the budget - find out how much more you'll pay with our calculator
manchestereveningnews.co.ukChancellor Rachel Reeves has committed to ending the previous government’s income tax thresholds - but not until 2028. In the meantime, that means thresholds remain frozen, with the personal allowance set to £12,570 a year, where it has been since 2021.
Thresholds are traditionally increased in line with inflation, which is currently at 1.7%. This means that while people’s salaries have been increasing every year, the tax thresholds have stayed still.
As a result people pay more and more tax every year, creating a phenomenon known as ‘fiscal drag’. For example, someone earning the average full-time salary of £37,430 a year will have a take-home pay of £26,560 once existing income tax and national insurance have been deducted.
Had Rachel Reeves increased the thresholds by the current rate of inflation, then that person’s take-home pay would be £27,712.
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