More than one million will be dragged into higher rate tax bracket, research suggests

12 Jan 2022

The Treasury's decision to freeze income tax thresholds will drag over one million people into the higher rate tax band over the next four years, according to research commissioned by the Liberal Democrats.

Analysis by the House of Commons library shows that the government's plans to freeze income tax thresholds until 2025/26 will mean that an additional 1.25 million people will be brought into the 40% tax bracket due to the current rapid wage and price inflation.

In addition, 1.5 million people on a low wage will be brought into paying the basic level of income tax.

The report uses inflation forecasts from the Office for Budget Responsibility (OBR) to show what the thresholds would be by 2025/26 if they were not frozen. It says the higher rate threshold would increase from £50,270 to £56,270, and that the personal allowance would increase to £14,070 from £12,570.

The report concludes that household disposable incomes are expected to be 1% lower by 2026 across all regions than they would be if there was no freeze to income tax thresholds.