Prime Minister Keir Starmer has refused to rule out continuing a controversial "stealth tax" levied on millions of Britons ahead of next week's Spring Budget.
During Prime Minister's Questions this afternoon, Starmer was unable to guarantee that the Labour Government will not an extension of the freeze on income tax thresholds.
This is widely referred to as a "stealth tax" as when incomes or inflation rise during a period of time when allowances remain the same, people are dragged into higher tax brackets.
In the House of Commons, Conservative Party leader Kemi Badenoch asked the PM: "Winter Fuel Payments have been snatched.
The Prime Minister has refused to answer questions regarding the "stealth tax"
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"The jobs tax is hammering everyone from business to charities. The Chancellor promised a once in parliament Budget that she would not come back for more.
"And in that Budget she said there will be no extension of the freeze in income tax thresholds. Ahead of the emergency Budget will he repeat the commitment that she made?"
Starmer replied: "She has got such pre-scripted questions she can’t actually adapt them to the answers I am giving. I think she now calls herself a Conservative realist, well I am realistic about the Conservatives.
“The reality is they left open borders... they trashed the economy... the NHS was left on its knees and they hollowed out the armed forces..."
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Conservative leader Kemi Badenoch called into question what Labour is doing to address the "stealth tax"
PARecent data from HM Revenue and Customs revealed the impact of "fiscal drag", which is the name given to this "stealth tax" phenomenon.
The tax authority reported an increase in the number of Britons pulled into the higher income tax band, with many pensioners paying the tax for the first time.
Around 680,000 extra people were liable to pay the 40 per cent rate of income tax in 2022-23 compared with the previous tax year, according to HMRC.
This represents a 15.3 per cent hike with the number of additional rate taxpayers, charged at 45 per cent rate, was also up by 9.5 per cent.
Fiscal drag is dragging Britons into higher tax brackets GETTY During her Autumn Budget in October 2024, Chancellor Rachel Reeves confirmed she would not prolong the tax threshold freeze decided by Conservative governments beyond 2028.
Income tax thresholds were originally frozen by the last Conservative Government with Chancellor Jeremy Hunt extending the fiscal policy until that year.
However, with higher than expected borrowing costs and the threat of tariffs from US President Donald Trump, analysts are sounding the alarm over a potential U-turn from Reeves.
Andy King, a financial planning specialist at Evelyn Partners, broke down what this rise in people being pushed into higher tax brackets shows.
He explained: [It] is of course due to the process of fiscal drag, as inflationary pay rises pull more people across tax allowances and thresholds that have been frozen since April 2021.
According to King, fiscal drag will "continue to increase the tax burden until the freeze is thawed, which will be 2028 at the earliest".
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A report from the London School of Economics highlighted why a freeze to tax allowances is likely to be a go-to policy for Governments.
It shared: "We can now see why this particular stealth tax is so popular with the current government (and possibly the next one).
"Rather than having to announce a politically disastrous increase in the basic rate of tax from 20 per cent to 23.33 per cent, it can claim that there has been no increase in the basic rate and therefore boast that it has protected income earners while at the same time surreptitiously raising huge sums of money for the Exchequer."
Chancellor Rachel Reeves is expected to announce any potential changes to tax policy during her Spring Budget statement on March 26, 2025.
