Chancellor Rachel Reeves' decision to keep tax thresholds frozen has resulted in a £9.8 billion boost to Treasury coffers in May alone, according to new HMRC figures. The Labour government collected £153.7 billion in tax and National Insurance during the month, nearly £10 billion more than the £143.9 billion recorded a year earlier.
Income Tax Receipts Surge
Income tax receipts contributed £23.4 billion to the total, marking a 9.7% increase from £21.3 billion in the same period last year. The rise is attributed to Reeves' decision to maintain frozen tax thresholds, a policy that has been criticised as 'fiscal drag' by opponents.
Tax Bands Remain Unchanged
The basic rate of income tax (20%) applies to earnings between £12,571 and £50,270, while the higher rate (40%) covers income from £50,271 to £125,140. Earnings above £125,140 are subject to the additional rate of 45%. These thresholds remain frozen until 2031, despite calls for them to be adjusted for inflation.
Expert Reactions
Sarah Coles, senior personal finance analyst at investment platform AJ Bell, described the situation as a 'horrible stealth tax'. She said: 'The taxman carved himself a hefty slice of our cash in May, devouring £153.7bn in one month alone thanks to a combination of frozen thresholds and a hike in dividend tax. The impact of this horrible stealth tax becomes more evident with each passing year. Every pay rise has pushed millions of people into paying more tax and more at higher rates.'
Nimesh Shah, partner at accountancy firm Blick Rothenberg, called stealth taxes a 'cash cow' for governments. 'Wage inflation has been pretty solid, dragging workers into higher tax bands without them even knowing,' he explained. 'It's a horrible way to raise taxes, but is a clever move for the Government.'
Government Response
Lucy Rigby, chief secretary to the Treasury, defended the policy, stating: 'Inflation has held steady and unemployment has fallen this week, but the war in the Middle East has clearly had an impact on economies around the world. We have the right economic plan to deal with these challenges – protecting families and businesses from rising costs, while cutting borrowing at a faster rate than any other G7 economy.'
The frozen thresholds are expected to remain in place until 2031, meaning millions more workers will be dragged into higher tax brackets as wages rise with inflation.
