Workers across the United Kingdom are facing a potential financial blow as Chancellor Rachel Reeves considers an income tax increase in the upcoming Autumn Budget.
Potential Impact on Pay Packets
Reports suggest the Labour Chancellor is weighing a plan to raise the basic rate of income tax by 1p. This single change is projected to generate approximately £8 billion for the Treasury but would have a direct impact on millions of workers. The proposed change is scheduled for an announcement on November 26.
According to analysis by investment platform AJ Bell, this adjustment could add upwards of £200 to the annual tax bills of many Britons. For an individual earning £35,000 per year, which is close to the average UK adult income, the annual income tax payment would rise from £4,486 to £4,710.
How Different Incomes Are Affected
The specific amount of the increase is directly tied to an individual's salary. Those earning £37,439 could see their annual tax bill jump by around £250, equating to just over £20 deducted from their monthly pay.
Lower-income earners would also feel the pinch, though to a lesser extent. A person with an income of £20,000 would face an increase of £74.30, raising their annual bill from £1,486.00 to £1,560.30.
Ways to Mitigate the Tax Rise
Financial experts are pointing to legal strategies that can help reduce the impact of a tax hike. Alice Haines, a personal finance analyst at Bestinvest, highlighted the benefits of pension saving and salary sacrifice schemes.
"Pension saving not only boosts future retirement income but also slashes your income tax bill today because any contributions attract tax relief at your marginal rate," Haines commented.
She specifically noted that "employees close to the £50,270 earnings threshold, for example, where the higher 40% tax rate kicks in, could dip under it by using salary sacrifice." This approach reduces gross salary, thereby lowering the amount of income tax and National Insurance Contributions payable.
Despite the speculation, Chancellor Reeves has remained cautious in her public statements. She affirmed that she understands the cost of living remains the public's primary concern but has declined to comment on individual budget measures at this stage.
