An extra 2.3 million people face an effective 62 per cent tax rate under the Andy Burnham government, as personal tax thresholds remain unchanged until at least April 2031. Former Labour Party chancellor Rachel Reeves extended the freeze for a further three years at her last Budget.
Personal allowance cut-off moves further away
Under HMRC rules, your standard personal allowance is completely cut off (reduced to zero) when your adjusted net income reaches £125,140. Had the threshold risen with inflation, earners today would only start to lose their personal allowance at around £160,000. An inflation-linked threshold would probably be worth around £174,000 by 2031, according to experts, which is £48,860 less.
More than 2.5 million workers will be caught by the £100,000 tax cliff edge by 2031, figures show. Under existing government policy, income tax and National Insurance thresholds have been frozen until April 2031 in England, Wales and Northern Ireland. That means that as you earn more, a greater proportion of your income is taxed.
Burnham hints at possible change
Labour Party leader Mr Burnham says he will "look at" allowing people to earn more before they start paying income tax, shifting the so-called personal allowance. Despite raising the issue in an interview as he took office, he's since distanced his government from any immediate change.
"There is no commitment at this point to change, but we will look at that at the budget," he told broadcasters.
Experts and Treasury respond
Michael Healy, of IG, said: "The £100,000 threshold is becoming increasingly detached from reality. It has been frozen since 2010, a time when Gordon Brown was our prime minister and Gary Neville still played for Manchester United.
"Wages and inflation have risen sharply since that distant time, meaning millions more people have been dragged into a tax trap, or otherwise stunting their career development to avoid it."
A Treasury spokesman said: "We are protecting payslips by keeping our promise not to raise income tax, National Insurance or VAT.
"The personal allowance is reduced for those with incomes over £100,000 to ensure support is focused where it's most needed, including funding public services."
