Nearly two million people are set to be caught up in a £9 billion “stealth tax bombshell” by the end of the decade as they are dragged into higher tax bands.
Figures commissioned by the Liberal Democrats found an extra 1.9 million people would be dragged into a higher tax bracket by 2030 due to freezes on the levels of income tax thresholds.
The government has frozen the level at which workers start paying income tax until April 2028.
Data from the House of Commons library showed that this would bring in an estimated £8.9 billion in additional tax, with the hardest hit areas in London and the southeast.
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Daisy Cooper, the Lib Dems’ Treasury spokeswoman, said: “During the midst of the worst cost of living crisis for a generation, people are now set to be hammered once again by this stealth tax bombshell.
“People should be rewarded for their hard work, not seeing earnings ripped away through these punitive measures.
Daisy Cooper said people were “seeing earnings ripped away through punitive measures”
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“The Conservatives’ economic vandalism led us into this mess, but this Labour government has proven clueless in generating the growth needed to break this stagnation.
“The only way we can bring the tax bill down, protect family finances and rebuild public services is through meaningful economic growth. That has to come from scrapping the government’s jobs tax and negotiating a bespoke UK-EU customs union to free our businesses from a Gordian knot of red tape.”
In London and the southeast about £3 billion in additional tax will be paid between now and the end of the 2029-2030 financial year.
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Figures from HM Revenue & Customs (HMRC) showed the number of higher-rate taxpayers topped five million for the first time as more earners were dragged into the upper band.
In the 2022-23 tax year, there were 5.1 million people paying the higher rate, amounting to 680,000, or 15.3 per cent, more than the previous year.
In comparison, five years earlier, there were 4.2 million people paying the higher rate.
An income tax rate of 40 per cent applies to earnings over £50,271. This threshold has been frozen at the 2021-22 level and will remain in place until April 2028.
Previously, most thresholds were due to rise in line with inflation, but the freeze, introduced by the previous Conservative government, meant that more people were dragged into a higher tax bracket if their earnings grew.
HMRC’s figures, which are the most up to date, recognise that so-called fiscal drag is behind the latest surge in higher-rate taxpayers.
Higher-rate taxpayers made up 15 per cent of all taxpayers and accounted for 35 per cent of the total amount raised by the government from income tax in 2022-23.
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The number of people paying the additional tax rate also rose to 600,000 in 2022-23 — 9.5 per cent more than the previous year.
The additional rate of 45 per cent is placed on earnings over £125,140.
These 600,000 additional-rate taxpayers made up nearly 2 per cent of all taxpayers and accounted for 34 per cent of income tax raised.
The freezes to income tax and national insurance thresholds date back to 2021, when Rishi Sunak as chancellor was attempting to build revenue in the aftermath of the pandemic.
Before it won power Labour attacked the use of the threshold freezes to raise funds, with Rachel Reeves arguing in 2023 that the Conservatives’ policy had “picked the pockets of working people”.