Workers could see wages shrink by £320 due to Labour's stealth tax rises – check how your pay could be affected
The government recently said it will not commit to lifting the freeze on income tax thresholds or national insurance (NI) in the next Budget - a move that would force millions of Brits into paying a higher rate of tax.
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Chancellor Rachel Reeves is expected to announce an extension to the freeze on income tax in the next Budget - which would shrink workers' wages
Credit: Alamy
Workers would be pushed into higher tax brackets as their wages rise with inflation - a concept known as fiscal drag.
The tax thresholds were frozen under the Tories, and are set to be lifted in April 2028.
It has now emerged that people could see their wages fall by £320 under if the freeze is extended by Labour.
According to wealth manager Quilter, if the freeze is extended by two years, a worker earning £30,000 could end up paying an extra £106 in income tax and national insurance in 2028-29 and an extra £214 in 2029-30.
Someone earning £60,000 would pay an extra £317 in 2028-29 and an extra £643 the following tax year.
Meanwhile, someone on £150,000 would pay an extra £354 in 2028-29 and an extra £718 the following tax year.
The freeze to income tax brackets means almost 2.9 million more people will pay the basic rate of income tax - which is 20% on earnings between £12,571 to £50,270 - in 2025-26 compared to 2021-22.
Over 2.6 million more will pay the higher rate - which is 40% on income from £50,271 to £125,140.
If Rachel Reeves does decide to extend the freeze on income tax brackets in her autumn Budget, it will mark yet another Labour U-turn.
The Chancellor previously ruled this out in last year's Budget, saying extending the policy would "hurt working people".
Millions of workers to get pay rise as Rachel Reeves reveals income tax changes
But economists believe Ms Reeves will be forced to renege on her promise, as she struggles to fill a £5billion black hole in the public finances.
The Chancellor also needs to find an extra £1.5billion to pay for winter fuel following another U-turn by her party.
TaxPayers' Alliance head John O'Connell told the Telegraph: 'This is the sad but inevitable result of successive governments' assortment of anti-affluence tax policies, which penalise aspiration and success.
'The UK is now trapped in a doom loop with the Chancellor desperately scrabbling around for more cash to fill the fiscal black hole and increasingly finding her only option is to come after the middle classes.
'Rachel Reeves needs to now show some humility and reverse the policies that have done so much to drive away high earners.'
The prime minister last month refused to commit to lifting the income tax freeze in 2028.
He only pledged not to increase National Insurance, income tax, or VAT.
Tory leader Kemi Badenoch criticised the stealth tax, saying it would hit "struggling pensioners" who would be dragged into paying income tax for the first time ever.
A Tory Party spokesman said at the time: 'The PM wouldn't repeat the promise his Chancellor made in the autumn to lift the freeze on income tax thresholds.
"He also refused to rule out a retirement tax and wealth taxes.
"The only reasonable conclusion is that a toxic cocktail of Labour tax rises are coming in the autumn budget.'
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