Income tax changes could affect millions in the UK
A report reveals that Chancellor Rachel Reeves may implement a tax rise that could result in an additional 1 million people paying income tax. This potential move involves freezing tax thresholds for two additional years, impacting pensioners and minimum wage earners, reports BritPanorama.
The Institute for Fiscal Studies estimates that this decision could bring £8.3 billion into Treasury coffers. However, nearly 960,000 individuals whose incomes increase only to match inflation would find themselves in a higher tax bracket.
This change could raise the number of income tax-payers in families eligible for Universal Credit to 3.1 million, representing an increase of 110,000 compared to the current policy. Labour had previously committed to not raising significant taxes or extending the freeze on tax thresholds.
Chancellor Reeves has emphasized the need to address a £30 billion financial shortfall, following a photo-op with Prime Minister Sir Keir Starmer during a visit to engineering students in Bangor, North Wales. Shadow Chancellor Mel Stride criticized the proposed changes, asserting, “This would take money from hardworking people to pay for more and more welfare spending.”
The current personal allowance stands at £12,570, meaning individuals pay tax at 20 percent on income above this threshold up to £50,271. The introduction of a higher tax rate of 40 percent kicks in thereafter.
Income tax bands have been frozen since the 2022-23 tax year, which historically enabled adjustments tied to inflation. This stasis could mean that minimum wage workers might face taxation after only 18 hours of work per week, a record low.
Under this proposal, individuals earning £20,000 would see their annual tax liability rise by £282 by April 2028. Consequently, the full new state pension is expected to exceed the personal allowance by the 2027-28 financial year. A Treasury spokesperson asserted, “We will deliver a Budget that boosts growth and cuts the cost of living.”
As the UK navigates these prospect changes in fiscal policy, understanding the implications for ordinary citizens remains crucial. The challenge lies not only in addressing the immediate financial gap but also in ensuring that the burdens of taxation align equitably across the population.
