We all should worry about this underhand attack on wealth
Put your tiny violins away for a minute, for this surge in earners paying the top rate (45p in the pound) of income tax is simply illustrative of a much wider and insidious political tax trick. And it's one that Rachel Reeves will surely soon deploy in her budget.
When Alistair Darling introduced the additional rate in 2010, about 236,000 people paid it — fewer than the population of Wigan. It was truly a tax for the country's very wealthiest. Yet now it is becoming a problem for the middle class to contend with.
It shows us just how a tax grab that starts life as a raid on the very richest can be used to tax those with much more modest incomes within a few years.
I am, of course, talking about fiscal drag, the phenomenon that sees the tax take rise as inflation pushes up wages and prices, exposing more taxpayers to higher rates and devaluing allowances and thresholds.
It's the same thing that has led to colossal rises in savers paying tax on their nest eggs as well as rising numbers of bereaved families having to pay inheritance tax.
Last week a think tank warned that Reeves now has a £50 billion black hole to deal with in her autumn budget. Tax rises are inevitable. The only question that remains is just how will she do it? As always, her best option is the one that is the most politically palatable — one that many of us won't notice or even understand.
• How much one year of Labour has cost you
Fiscal drag has become a chancellor's most useful tool. Politicians had dabbled with this before but it was Rishi Sunak who really went to town when, as chancellor, he put tax thresholds into a five-year deep freeze. Inflation then proceeded to rocket and the Treasury sat back and watched the money flow in.
Jeremy Hunt then happily extended this freeze for a further two years, up to 2028. Forget black holes, Labour inherited a stealth tax gold mine from the Tories.
Many of you will not object to raising taxes but my point is that this is an underhand way of doing so. We should not lightly accept such significant changes because they are made gradually.
Inheritance tax has become far more pernicious thanks to fiscal drag. A house price boom and a bout of high inflation has meant that, all of a sudden, many more unsuspecting families are being told to pay 40 per cent tax on their loved one's life's work.
Take the £3,000 annual gift allowance, the sum you can give away that will be instantly free of inheritance tax. That limit was introduced 44 years ago. It should now be worth approximately £11,500. Such an increase would spare thousands of families from the grief caused by the death tax.
• 'My reward for being a good saver? A £1,000 tax bill'
Everyone should be furious about the unashamed abuse of stealth taxes. Failing to upgrade allowances and thresholds is a direct raid on your earnings and wealth.
Workers typically receive annual pay rises, while the state pension and public sector pensions are guaranteed to keep up with the cost of living. Taxes should stay proportional too.
Since the freeze began in 2021, more than seven million people have been dragged into paying a higher rate of income tax. The number of higher rate taxpayers has risen from 4.4 million to seven million, while millions of pensioners are now being asked to pay a higher rate of income tax.
It all underlines the fact that our tax system is far too complicated for our own good. Taxes should be levied in real terms. If pay rises, so should tax thresholds and allowances.
• Read more money advice and tips on investing from our experts
But fiscal drag is not just a sly way of collecting more tax, it's a damaging inertia that has allowed governments to become increasingly unaccountable when it comes to raising taxes and profligate spending.
We obviously need to pay tax to sustain our public services but the way in which we are doing so is no longer open and honest.
Every tax rise should be justified and come with the expectation that your money will be spent wisely.
More and more of us now know what fiscal drag is but not nearly enough. Although I suspect that by 2030, the impact of Britain's stealth tax binge will be impossible to ignore.
Johanna Noble is away
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