Prime Minister Keir Starmer is under mounting political pressure over a potential 'stealth tax' expected to be unveiled in next week's Budget.
What is the 'Stealth Tax'?
The controversy centres on a freeze on income tax thresholds that has been in place since 2021. The government is now expected to extend this freeze, a move that effectively increases the tax burden without an official rise in tax rates.
As people's earnings increase over time, they are pushed past frozen tax thresholds into higher bands, forcing them to pay more tax. This mechanism is why it is often labelled a stealth tax.
Pensioners Set to be Affected
The impact of this policy is far-reaching. Millions of state pensioners are set to be dragged into paying income tax as a direct result.
Analysis shows the new state pension is projected to come within just a few pounds of the personal allowance next year. The personal allowance is the point at which an individual starts paying income tax. It is then forecast to overtake the allowance entirely in 2027, meaning pensioners receiving the full new state pension would automatically become income tax payers.
Political Clash at Prime Minister's Questions
The issue came to a head during Prime Minister's Questions, where Conservative leader Kemi Badenoch directly challenged the Prime Minister.
When pressed on the claims of a stealth tax, Keir Starmer refused to rule it out. He stated, "The Budget is one week today and we will lay out our plans." He contrasted his government's approach with the previous administration, adding, "What we won't do is inflict austerity on the country as they did. What we won't do is go on a borrowing spree like they did."
In response, Ms Badenoch was unequivocal, stating, "It is quite clear they are going to freeze thresholds." She questioned the government's trustworthiness, adding, "If she (Reeves) breaks such a clear promise how can the public trust what she says next week?"
All eyes are now on Chancellor Rachel Reeves, who will deliver the highly anticipated Budget on Wednesday, November 26, where the government's plans will be confirmed.
