Prime Minister Andy Burnham Begins Work From No 10 North (Image: Getty)
New Prime Minister Andy Burnham has been warned more than one million extra Brits are expected to be dragged into paying more to the taxman this year. The expected tax grab is as a result of the continuing freeze on tax allowances, a tax watchdog is warning.
An additional 500,000 people will start paying basic-rate tax, while 410,000 more will be pushed into the 40% higher-rate band and 70,000 more into the additional-rate band during 2026-27, according to the TaxPayers’ Alliance. The figures lay bare the continuing impact of fiscal drag – the process by which frozen tax thresholds pull more people into paying tax, or paying it at higher rates, as wages rise.
The income tax personal allowance is frozen at £12,570, with the 40% higher-rate threshold fixed at £50,270 and the additional rate applying above £125,140.
The freeze was first introduced by Tory Chancellor Rishi Sunak in April 2022. Originally due to end in 2026, it has since been extended until April 2031, turning what was meant to be a temporary measure into a nine-year stealth tax.
It means millions of workers have found themselves paying more tax despite no change in the headline rates of income tax. The TPA estimates the average taxpayer will hand over £640 more in income tax than they did in 2024-25, and £1,040 more than in 2023-24.
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It comes despite repeated complaints about frozen tax thresholds, with Prime Minister Andy Burnham having described the freeze in the personal allowance as one of the biggest issues raised by voters during the Makerfield by-election campaign before entering Downing Street.
Recent HMRC data has already shown the impact of the freeze, with millions more taxpayers expected to be caught by higher rates over the next few years as earnings continue to rise while thresholds stand still.
The stealth tax is increasingly hitting pensioners too. The number of over-65s paying income tax is forecast to jump by 630,000 in a single year, taking the total to 10.2 million.
Overall income tax receipts are expected to reach £347 billion in 2026-27, an increase of £43 billion compared with 2024-25. The burden is falling particularly heavily in London and the South East, where salaries are generally higher.
In London, 25.9% of taxpayers are expected to pay the higher rate, compared with 14.4% in the North East. In the North West – Mr Burnham’s home region – 16.2% of taxpayers are forecast to be higher-rate taxpayers.
The research also highlights how concentrated the tax burden has become. The top 1% of income taxpayers are expected to earn 12.8% of all income but pay 26.6% of all income tax, while higher and additional-rate taxpayers together will account for almost 73% of all income tax receipts.
John O’Connell, chief executive of the TaxPayers’ Alliance, said: “A million more Brits are being caught in the taxman’s net by stealth.
“Freezing thresholds lets ministers rake in billions without admitting they have raised taxes, hitting workers, pensioners and families across the country.
“If Andy Burnham really wants to give hard-working taxpayers breathing space, he should end fiscal drag and unfreeze tax thresholds.”
The figures are likely to intensify the debate over fiscal drag, which economists have repeatedly described as one of the largest tax-raising measures of recent years.
A HM Treasury spokesperson said: “We are protecting payslips by keeping our promise not to raise Income Tax, National Insurance or VAT.”