How the Tory stealth raids are hitting you in the pocket

Chancellor Jeremy Hunt is under pressure to use the spring Budget to cut taxes, due to hit their highest level since the Second World War.

But he has been trying to temper expectations of big tax giveaways. In January he warned he may not have as much fiscal headroom as he had when he announced cuts to National Insurance (NI) rates in the autumn.

Millions are paying higher rates of tax because of Prime Minister Rishi Sunak’s decision as chancellor in March 2021 to freeze thresholds. Tax bands are normally increased with inflation to stop workers from drifting into higher income tax brackets as their wages rise.

The freeze was initially expected to raise £8bn and last until 2026. But Mr Hunt then extended the freeze until 2028-29 and widened it to include NI contribution thresholds.

Britain will pay an extra £44.6bn because of the stealth tax raid, according to the Office for Budget Responsibility (OBR).

Workers start paying 20pc income tax once they earn over £12,570 a year. The higher 40pc rate kicks in at £ 50,270. Both of these thresholds have been frozen until 2028-29 under the current rules. As a result, almost four million more people will start paying income tax, while three million will be dragged into the higher rate.

The additional rate threshold – above which workers pay 45pc income tax – was lowered to £125,140 in April 2023. An estimated 400,000 taxpayers will be hit with the additional rate by 2028-29.

Thousands more families are expected to pay inheritance tax because of the freeze on allowances. It is expected to raise £7.6bn for the Treasury in 2023-24 – up 7.5pc year-on-year.

An estimated 2.75m people are set to pay tax on cash savings interest in 202324, according to stockbroker AJ Bell.

This is because the personal savings allowance has been frozen since 2016. Basic rate taxpayers can earn up to £1,000 in interest before they must pay tax. This drops to £500 for higher rate taxpayers. Additional rate taxpayers get no allowance. Anyone with cash outside of a tax-free wrapper risks being caught in the tax trap.