“Giving with one hand and taking with the other in this way is opaque and stealthy,” said Thomas Wernham, a research economist at IFS. “Freezes far more than outweigh headline policies such as the 1p cut to the basic rate of income tax, or the reversal of the health and social care levy, and they are set to drag millions more into the tax system and into higher rates of tax.”
The Institute for Fiscal Studies (IFS) has calculated that for every £1 given to workers by cutting headline tax rates, £2 was being taken away through a freeze on the level at which people begin paying tax on their earnings.
When taken with plans for benefits, the IFS said the poorest in Britain would see their incomes hit hardest over the next three years. While the richest 10% of households will benefit by £2,290 a year on average from cuts to national insurance and income tax, the poorest will benefit by just £13.
The tax-free personal allowance, above which workers pay tax at the basic rate, is frozen at £12,570, while the higher-rate threshold is frozen at £50,270. The additional-rate threshold remains at £150,000. The IFS said soaring inflation meant millions more would be dragged into higher income tax brackets, with the policy now expected to be four times costlier for workers than when it was first announced.
According to the study, 1.4 million more adults will pay the basic rate, while 1.6 million would move into the higher-rate bracket. About three times as many will be in the additional-rate band, at about 760,000.
A freeze for the benefit cap – which sets a maximum for the amount of support some out-of-work families receive – will mean the number of affected households doubles to 250,000, while 500,000 more families will lose some or all of their child benefit entitlement.
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