6 March 2024
If you are covering the OBR forecasts about how many more taxpayers there will be as a result of frozen tax thresholds, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
"Hunt has tried to pull a rabbit out of the hat with his 2p cut to national insurance but much like all magicians his trick is all smoke and mirrors. The Office for Budget Responsibility (OBR) has illustrated that much of these savings are likely to be offset by frozen thresholds pushing people into paying more income tax. In fact, a further 2.7 million people, according to the OBR, will be paying higher rate tax by 2028/29 due to frozen tax thresholds and an additional 3.7 million people paying income tax.
"The majority of the people dragged into higher tax bands may not feel wealthier as their salaries have simply kept up with inflation. This means that in real terms their buying power remains much the same, yet their salaries are taxed much more.
"The reason more people move into new tax bands is due to fiscal drag. Fiscal drag happens when the income level at which taxes start to be collected and the amount of income that can be earned tax-free do not increase at the same rate as inflation or income growth. This can cause a larger portion of a person's income to be subject to taxes and can also cause more people to fall into higher tax brackets, ultimately meaning they pay more in tax despite the headline cuts to national insurance. This is especially true of those whose income is from pensions, savings or rental income as they will not benefit from the 2p cut to national insurance at all.
"Therefore, the government should re-think the length of the freeze on income tax bands as while it is understandable it is keen to refill public coffers, this should be balanced with a fair tax system that is not dragging more and more people into higher taxes. The national insurance cut should also not be dressed up as a giveaway when the reality is many millions of people will be paying more income tax in the years to come under current rules."
