Millions of workers across the UK earning less than £35,000 a year are set to be pursued by HMRC for up to £200 each, as the taxman enforces frozen tax thresholds.
The Financial Impact on Low and Medium Earners
Chancellor Rachel Reeves of the Labour Party has decided to maintain the freeze on tax thresholds, a move that will directly impact the take-home pay of low to medium earners. According to estimates from the Resolution Foundation, individuals with an annual income under £35,000 could see their pay reduced by £150 to £200 per year.
To put this into perspective, a person earning around £33,000 could lose an extra £175 annually to HMRC under a scenario with moderate wage rises. Someone closer to the £35,000 mark could face a reduction of approximately £200.
Expert Analysis and Warnings
Ruth Curtice, Chief Executive of the Resolution Foundation, criticised the policy, stating: “Sticking to her manifesto tax pledge has cost millions of low-to-middle earners, who would have been better off with their tax rates rising than their thresholds being frozen.”
She further issued a stark warning to households, adding: “Until growth and living standards are addressed, households can expect plenty more bracing Budgets.”
How the UK Tax System Works
The UK's income tax structure is based on several bands. Every individual receives a personal allowance of £12,570, meaning income below this level is not taxed.
- Income between £12,571 and £50,270 is taxed at the basic rate of 20%.
- Earnings from £50,271 to £125,140 are charged at the higher rate of 40%.
- Any income over £125,140 is taxed at the additional rate of 45%.
It is important to note that there are additional charges on savings and property income. Furthermore, if you earn more than £100,000 after accounting for factors like pension contributions, your personal allowance is reduced by £1 for every £2 you earn. Once your income reaches £125,140, you lose your tax-free personal allowance entirely.
The real-world consequences are severe. One British citizen shared with the Guardian that their family is “struggling to save but not just that we are also struggling to pay the bills and put food on the table.” They expressed frustration, saying, “We just wish the system were a little more efficient. We’ve always worked, employed people and paid our taxes, but the pressure keeps mounting, and it feels like we’re getting very little back for everything we put in.”
