Why you will pay more next year even if the Chancellor does nothing

Higher earners will pay almost £1,000 more in taxes in 2021 as rises in wages, council levies and spending outpace increases to any tax-free allowances.

The bigger tax bills will come even if the Chancellor holds off on tax rises in his anticipated Budget. Many have said these are inevitable to cover the huge levels of public debt created by the state’s coronavirus bill.

Sarah Coles, of investment firm Hargreaves Lansdown, said most people would end up paying more next year.

“We know the Government will eventually raise taxes in order to claw back some of the money it spent during the pandemic. Some of these tax hikes could be announced as early as March, but even if it holds fire for longer, we will pay more tax next year.

“Chancellor Rishi Sunak doesn’t need to hike taxes to increase what we pay – inflation will do that for him.”

Rising wages will result in larger income tax and National Insurance bills. Salaries will rise 2.1pc in 2021, according to the Office for Budget Responsibility, the official forecaster.

Despite this, the amount anyone can earn tax free will only rise by a fraction of this – just 0.5pc to £ 12,570. It means someone earning £ 50,000 will pay £ 392 more in income taxes in 2021, assuming their wages go up in line with the national average.

On top of this, council taxes will go up. Councils can increase levies by up to 5pc to help fund social care, plus an extra £ 5 for local policing. The bill for an average home ( band D) could increase from £1,818 to £1,924 next year – a £106 jump. Those in band H, the highest band, could end up paying £212 more.

Going back to the shops following months of lockdowns and restrictions will mean bigger VAT bills, too. A combination of a fall in consumer spending this year and emergency tax holidays for some sectors hit particularly hard by the crisis means the Treasury’s VAT take is expected to fall 7pc to £116bn. But as the economy starts to recover, consumer confidence is expected to shoot up by 13pc to £131bn. The average taxpayer’s VAT bill will, therefore, rise from £2,796 to £3,159 – a £363 year- onyear increase, according to analysis of OBR figures by Hargreaves. All in all, a £50,000 earner could end up paying £ 966 more in 2021, even before including other potential tax rises yet to be announced.