Workers earning £48,000 a year will be hit harder by Rachel Reeves’ Budget stealth tax than those on three times the figure, analysis has revealed.
The Chancellor announced plans to extend the freeze on tax thresholds for a further three years despite previously ruling out the controversial move.
Ms Reeves has repeatedly claimed she is focused on ensuring those with the ‘broadest shoulders’ pay their ‘fair share’ of tax.
But new analysis of the threshold freeze – which was by far the biggest tax-raising measure in the Budget – reveals the biggest victims will be those on middle incomes, including police officers and senior teachers and nurses.
Research by the Institute for Fiscal Studies found someone earning £46,000 a year will pay an extra £410.46 a year in tax by the time the freeze finally comes to an end in 2031.
A worker earning £48,000 a year will pay an extra £603.50. By comparison, someone earning £150,000 will pay an extra £393.59.
A worker on just £12,000 a year will pay an extra £220.15 – a far higher proportion of their income than someone earning ten times as much.
Shadow Chancellor Sir Mel Stride said: ‘Rachel Reeves is trying to pull the wool over Britain’s eyes. She said the wealthiest would contribute the most, but the biggest tax rise in her Budget was a stealth tax which hits middle earners the hardest.
Chancellor Rachel Reeves leaving 11 Downing Street for Prime Minister’s Questions last month
‘This isn’t economic necessity, it’s a choice, with working people’s pay packets being raided to fund Labour’s decision to increase the benefits bill.
‘Rachel Reeves wants to pretend she is protecting working people, but in reality she is punishing them.’
The Treasury has pointed to a ‘distributional analysis’ published alongside the Budget which suggests the biggest losers will be the top 10 per cent of earners when all of the Chancellor’s tax and spending measures, such as the new ‘mansion tax’, are taken into account.
But the findings underline the impact of the stealth tax raid in dragging millions of ordinary workers into higher tax bands.
The freeze on tax thresholds was first imposed by Rishi Sunak in 2022 to help pay off the huge debts run up during the pandemic. But what started as a four-year freeze was then extended by a further two years by Jeremy Hunt.
In Opposition, Ms Reeves likened the move to ‘picking the pockets’ of working people.
At her first Budget in 2024 she ruled out extending the freeze any further, saying it would ‘hurt working people’ and break Labour’s manifesto pledge not to raise income tax.
But anaemic growth and U-turns on welfare cuts meant she extended the freeze for a further three years until 2031 at the Budget in November.
Experts say the nine-year freeze is now set to be the biggest stealth tax in history.
By the end, an extra 5.2 million low earners will have been dragged into the income tax system, while 4.8 million middle earners will pay the 40p tax rate, which was originally designed to be paid only by the rich.
