The Chancellor, Rishi Sunak is reported to be considering an income tax bombshell that will affect tens of millions of people who will pay more under the ‘stealth tax’ proposal.
Next month Sunak will deliver the 2021 Budget which could see him implement a £6bn stealth tax where personal income tax allowances will be frozen.
It has further been reported that Treasury officials could scrap the planned increases for the £12,500 and £50,000 thresholds.
These thresholds determine how much you earn without without having to pay income tax. When no tax rates are being increased, this is then called the “stealth tax.”
If the Treasury does not go ahead with the increases then millions will be forced to pay a higher tax rate over a much larger proportion of their annual income.
A treasury source called the move “quite logical,” whilst Boris Johnson’s business advisor, Andrew Griffin had previously predicted that this will be announced on 3 March.
Griffin said, “In a world where tough choices will have to be made, the best form of those are ones that are the most broadly based.
“A freeze in allowances would be amongst them.”
Currently a person can earn £12,500 without paying tax, which was due to rise with inflation year-on-year to around £13,250 by 2024.
Also the £50,000 threshold was due to rise to an estimated £53,000 by the end of the current Parliament.
According to an economic think tank, The Resolution Foundation said that by freezing both rates from April until the next election, the Treasury would raise around £6bn.
Mike Brewer, the deputy director of the Resolution Foundation said, “The daunting task of repairing the public finances lies ahead, with tax rises of £40billion likely to be required by the end of parliament.
“No tax rise is completely painless, but some are much easier to introduce than others.
“There are good reasons that freezing income tax allowances is tried-and tested revenue raiser: it’s a classic stealth tax, a way to improve the fiscal outlook without generating much uproar.”
A Treasury spokesman said, “We do not comment on future tax policy outside of fiscal events.”