People who earn between £43,000 and £70,000 set to lose up to £8,200 in tax raid
People who are earning £70k have been warned over a tax raid from the Labour Party costing them £8,200 a year. The Chancellor's freeze on tax thresholds could cost high earners £16,500 and also put a squeeze on those on middle incomes, it has been warned.
An analysis by the Telegraph suggests that the effect of extending the freeze for two years, rather than raising tax thresholds in line with increases in wage, would cost someone earning £70,000 some £8,266 a year. For someone earning the average wage of £43,200 this year, extending the freeze on tax thresholds would cost an estimated £1,654 a year.
Calculations by financial planners at Quilter suggest that if Labour unfroze the tax thresholds as planned and instead added 1p to the rate of income tax for every £1 earnt, then someone earning £20,000 a year would be £33 better off annually.
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For those on even lower salaries, the savings would be more dramatic, with someone on £15,000 likely to be £83 a year better off. The saving is small and those earning more than £25,000 a year will generally be better off from the thresholds staying frozen, as opposed to the tax rate being increased. This would see someone on a £35,000 salary save £117 per year.
Catherine Mann, an external member of the BoE’s Monetary Policy Committee, said people on middle incomes had been hard hit by the effect of income tax and national insurance thresholds being fixed in cash terms, coming on top of higher mortgage costs and consumer prices.
“This middle-income group is an especially important one. They have been exposed to a relatively greater degree to tax-bracket creep. Under inflation, more of this group had more of their income creep into a higher tax bracket. This is an important consideration for purchasing power in the current environment,” she told an event at the IMF’s annual meetings in Washington.
Ms Mann said: “Consumer behaviour really is the linchpin”.