Stealth tax on middle class

Families to pay price of SNP squeeze on earnings

MORE Scots families will be dragged into higher tax brackets following the Chancellor’s five-year freeze on thresholds.

Rishi Sunak said income tax and national insurance thresholds will be pegged for five years after rising by inflation, as planned, from next month.

Although tax bands are devolved and set by the Scottish Government, the Treasury still controls the tax-free personal allowance, which will rise from £12,500 to £12,570 from next month across the UK before being frozen for the following five years.

National insurance contributions will also be frozen until 2026 after this year’s rise. It means workers will have to pay in 12 per cent of earnings between £9,569 and £50,270.

But the higher threshold will also stay frozen, meaning more workers will pay only 2 per cent on earnings above £50,270.

The SNP Government has already announced the threshold for paying the basic, intermediate and higher rates of income tax will rise in line with inflation in Scotland next month. Everyone earning more than £27,393 will pay more income tax than they would if they lived south of the Border.

Alexander Garden, chairman of the Chartered Institute of Taxation’s Scottish technical committee, said: ‘Today’s income tax announcements confirm that from April, Scottish taxpayers earning more than £27,393 per year will pay more income tax than those in other parts of the UK. Below this amount, they will pay less, saving £21 per year. The Scottish parliament agreed to its own income tax plans last week and there is no reason to believe that these will change as a result of today’s announcements.’

Under the SNP’s Budget, which was unveiled last month, the 19 per cent basic tax rate will be charged on income between £12,570 and £14,667.

It then rises to a starter rate of 20 per cent up to £25,296, an intermediate rate of 21 per cent up to £43,662, a 41 per cent higher rate up to £150,000, with a top rate of 46 per cent above £150,000.

The changes – combined with the increase in the tax-free personal allowance by the UK Government – mean that workers on the starter rate will take home an extra £14.12 a year, rising to £15.50 for those on the intermediate rate and £61.90 for those paying the top rate.

But everyone earning more than £27,393 will continue to pay more tax than they would if they lived south of the Border.

Someone on a salary of £50,000 will receive £1,494 less in their pay packet, with the squeeze on takehome income increasing to £2,048 for those on £100,000 and £2,673 for someone earning £150,000.

It is estimated that Mr Sunak’s five-year freeze on income tax thresholds will drag 2.3 million workers into higher brackets south of the Border.

The Chancellor’s five-year fix was criticised last night as a ‘stealth and wealth tax’ that will hit people harder as wages increase with inflation.

In what is a pay cut in real terms for millions of families, the freeze on income tax and national insurance thresholds will raise more

‘Stealth and wealth tax’

than £19billion for the Treasury over five years. Mr Sunak said: ‘This government is not going to raise the rates of income tax, national insurance, or VAT. Instead, our first step is to freeze personal tax thresholds.

‘We’ve nearly doubled the income tax personal allowance over the last decade, making it the most generous of any G20 country.’

The freeze means households face a growing tax burden until at least 2026 as income tax rates will be left behind by inflation and inflationary pay increases.

Personal finance expert Myron Jobson, of broker Interactive Investor, said: ‘A freeze on income tax thresholds effectively equates to a pay cut.’

Steven Cameron, pensions director at Aegon, warned: ‘There is the potential for inflation to be higher in future years, possibly resulting from a post lockdown consumer spending spree.

‘This could lead to the freeze having a significant impact.’

‘A significant impact’