Take home pay could increase £600 by 2025 a tax firm has calculated. In the mini budget, Chancellor Kwasi Kwarteng pledged to help families keep more of their hard-earned money. However tax firm Blick Rothenberg showed that all of the tax changes announced by the Government since March 2021 still leave taxpayers worse-off.
They calculated that by re visiting former Chancellor Rishi Sunak’s freeze on tax thresholds people could be £600 richer without a tax cut.
The accountancy firm looked at how much taxpayers will earn as a result of the one percent cut to the basic rate of income tax and the increase to the National Insurance threshold to £12,570 in July of this year.
It found that taxpayers will keep more of what they earn because of the changes. A taxpayer on £100,000, for example, will take home £67,426, up from £66,689, in three years’ time.
Yet that same taxpayer would have pocketed £509 more in the 2025/26 tax year if the Government had made none of these changes, and instead raised income tax thresholds in line with inflation.
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Altogether, over the next four years, they will be £1,296 worse-off under the current plans.
Nimesh Shah, chief executive of Blick Rothenberg, said Mr Sunak’s decision to freeze the personal tax allowances and thresholds until 2025/26 in his March 2021 Budget will “leave a long-lasting and severe legacy” for working families and middle earners alike.
A taxpayer on £30,000 will see their net pay increase to £24,597 in 2025/26, when it would have grown by £604 to £25,200 had Mr Kwarteng broken the tax freeze, while a taxpayer on £50,000 would have kept £404 more of their pay.
Mr Shah said: “Bringing forward the one percent reduction in the basic rate of income tax at a cost of around £5billion will be largely insignificant in the context of frozen allowances.
Following the reversal on plans to scrap the 45p rate of income tax for higher earners, because the £150,000 threshold at which the rate starts to bite has been frozen since 2010, by 2025-26 there are projected to be around three times as many additional-rate income tax payers as there were when the rate was introduced.
The IFS also said there are various aspects of the benefits system where freezes are biting.
Tom Wernham, a research economist at IFS said: “Of all the changes to taxes and benefits over the next three years, freezes to various tax and benefit thresholds and allowances are the most significant and least transparent.
“Freezes far more than outweigh headline policies such as the 1p cut to the basic rate of income tax, or the reversal of the health and social care levy, and they are set to drag millions more into the tax system and into higher rates of tax.
“Giving with one hand and taking with the other in this way is opaque and stealthy – and when inflation is volatile the impact can vary hugely from what the Government initially intended.
“For example, the unexpected bout of inflation we’re now facing means that the freeze to income tax thresholds is around four times as big a tax rise as expected when the policy was announced.”