Middle earners across the UK are set for a significant financial blow as the Labour government's Autumn Budget approaches, with analysis revealing a potential £3,000 hit for those earning over £44,000.
The Stealth Tax Impact on Take-Home Pay
According to the Institute for Fiscal Studies (IFS), a worker earning £44,000 would pay an extra £2,978 over the next four years, despite headline tax rates remaining unchanged. This substantial increase comes ahead of the Labour Party's Autumn Budget, scheduled for November 26.
The analysis from financial experts Quilter shows these changes will make a noticeable difference to people's monthly income. The mechanism behind this increase is a combination of extending the current freeze on tax thresholds and potentially lowering the point at which workers enter the higher tax bracket.
How the Threshold Changes Stack Up
The IFS outlines two potential scenarios. If the government simply extends the current freeze on tax thresholds, someone on £44,000 would pay an extra £843 over four years.
However, if the higher-rate threshold is cut from £50,270 to £45,000 and then frozen, with National Insurance limits moving in line, the total extra tax paid would jump dramatically to £2,978.
The impact spreads across different income levels:
- A worker on £40,000 would pay an extra £321 from the freeze alone, rising to £1,010 if thresholds are lowered.
- Someone earning £50,000 could see their tax bill increase by roughly £750 per year.
- A person on £100,000 could end up paying around £5,800 more if the top rate threshold falls from £125,000 to £100,000.
Expert Warning on Fiscal Drag 'Injustice'
Shaun Moore, tax and financial planning expert at Quilter, has issued a stark warning about the consequences of reducing income tax thresholds. He stated that such a move would "compound the injustice" of fiscal drag.
Mr Moore criticised the approach as "a blunt and opaque tool" that "risks eroding trust in the tax system at a time when the public expects clarity and honesty about the fiscal choices ahead."
He elaborated further: "The idea of cutting income tax thresholds is essentially an attempt to pretend that the last few years of high inflation never happened. For many households that combination will feel incredibly regressive and make them poorer in real terms despite on paper having higher salaries."
The coming weeks will reveal the full extent of the government's plans, but for millions of middle earners, the financial outlook appears set to tighten significantly as fiscal drag takes its toll on household budgets.
