Stealth raid adds

Overall demand set to reach highest level since World War 2

MILLIONS of Britons will see their incomes hit as stealth taxes pull growing numbers of people into paying more.

Frozen and lowered income tax thresholds mean that even though wages are not rising enough to keep pace with the cost of living, many employees will end up being hit.

The Treasury is on course in the current financial year to rake in more than £1trillion in tax.

Meanwhile, plans to freeze some income tax thresholds and lower others in Scotland will also bring in more than £100milllion.

The Scottish income tax levels, which will come in from next month, are forecast to raise £129million and could reach £519million when the ‘fiscal drag’ caused by the frozen rate threshold is taken into account.

The situation comes as Britain’s tax burden looks on course to rise to the highest level since the Second World War.

The Office for Budget Responsibility (OBR) has said the overall tax burden will rise to the equivalent of 37.7 per cent of gross domestic product by 2027-28.

The forecast for the overall tax burden is even higher than the 37.1 per cent predicted in the OBR’s last forecast in November.

The record level is partly the result of corporation tax rate going up in April from 19 per cent to 25 per cent – despite a clamour from business leaders and Tory MPs to scrap the rise.

The ratio of corporation tax to GDP will rise to its highest level since it was introduced in 1965.

The UK Government has frozen tax thresholds, meaning that in five years from now 3.2million people who were previously not liable for income tax will be dragged into paying it, while nearly 2.5million will be pulled into higher brackets.

The Scottish Government, which sets income tax north of the Border, has already announced it will freeze thresholds for the starter, basic and intermediate rates at their current levels.

Meanwhile, income tax bills for hundreds of thousands of Scots earning more than £43,662 are also set to soar from April.

Scottish taxpayers earning more than £43,662 will pay a 42p rate of income tax, while Scots earning over £125,140 will pay a top rate of 47p. In the rest of the UK, the rates are 40p and 45p.

The freezing of thresholds means that even though wages are still lagging behind as the cost of living crisis bites, many are still being pulled into higher tax bands. This ‘stealth tax’ sees more people dragged into paying higher tax as wages and prices rise.

John Swinney, who is acting

Finance Secretary while Kate Forbes is on maternity leave, has argued that the ‘emergency’ in the economy and NHS means taxes must go up.

The UK Budget forecast also shows that borrowing for the current 2022-23 financial year will come in at £152.4billion, £24.7billion less than was forecast in November. That is thanks to a better than expected economic picture and the falling cost of the Government’s energy price freeze – the result of lower global prices.

Yet Budget measures announced by Chancellor Jeremy Hunt to keep down energy bills, support business investment and encourage more people back to work mean he has already spent two-thirds of the windfall from the improved fiscal outlook, the OBR said.

It means that while Mr Hunt is on course to meet the Government’s target to see debt as a percentage of GDP falling in five years’ time, that is ‘by only the narrowest of margins’, the OBR said. And that will only be after debt hits its highest level in more than 50 years.

The expected ‘headroom’ of £6.5billion will be the lowest for any Chancellor since the watchdog was established in 2010. It will be even smaller if – as every Chancellor has done since 2011 – he continues the policy of freezing fuel duty receipts each year, at a cost of around £4billion.

Debt interest spending is on course to hit £114.7billion, or 11.2 per cent of GDP, in 2022-23, its highest level since just after the Second World War.

That is because the interest paid on much of the Government’s debt is linked to inflation, which has been soaring.

Paul Johnson, director of the Institute for Fiscal Studies, said: ‘We are still in the midst of an enormously difficult period for households. We’re by no means out of the woods yet.’

‘The narrowest of margins’