Tax threshold freeze could see lowest earners pay extra £600 yearly

Britain's lowest earners will see their tax burden rise by £600 a year as a result of the Chancellor’s personal tax threshold freeze, economists have warned.

Rachel Reeves announced in her Budget last week that she would continue to freeze the amount of money people can earn tax-free until 2028.

The stealth tax will make the bottom 10 per cent of earners hundreds of pounds a year worse off, according to analysis by the National Institute of Economic and Social Research (NIESR).

Low-income families will be penalised further as living standards for the poorest 40 per cent of households will not return to pre-2022 levels until the end of 2026-27 at the earliest, the institute said.

Professor Adrian Pabst, NIESR’s deputy director for public policy, said some of the Government’s tax decisions risk ‘discouraging more business investment’ and hitting poorer households.

‘Keeping the personal tax thresholds frozen for another three and a half years will make the bottom 10 per cent of earners about £600 per year worse off,’ he said.

‘It would be better for the living standards of those households that have been hit hardest by the shocks over the past few years if the Government raised income tax for top earners while unfreezing the thresholds.

‘It’s time to throw off the self-imposed fiscal straitjacket and do the right thing for the economy and society.’

It came as the boss of Primark yesterday claimed the high street would bear the brunt of Rachel Reeves’s ‘ill-judged’ Budget - which will saddle his business with ‘tens of millions’ in extra costs.

George Weston said the ‘weight of tax rises’ announced by the Chancellor - including her £25bn raid on employer National Insurance contributions (NICs) - would fall on stores.

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Retailers are also facing a 6.7 per cent increase in the minimum wage and a £140m increase in business rates.

The comments came as a leading economic think-tank warned that the NICs hike would cost jobs.

And the Office for Budget Responsibility said growth-boosting measures in the Budget would not ‘move the dial’. Meanwhile, separate monthly data suggested the economy was running out of steam.

It comes after reports that the bosses of large retail and hospitality companies and trade associations told the Business Secretary Jonathan Reynolds that the Budget risked damaging consumer confidence and exacerbating challenges facing the UK economy.

Sky News reported that companies including Burger King UK, Fuller Smith & Turner, Greene King, Kingfisher and the supermarket chain Morrisons were represented on the call.

Elsewhere yesterday the Institute for Fiscal Studies warned MPs that the Budget and Labour’s workers’ rights overhaul could force people to become self-employed.

IFS director Paul Johnson told the Commons Treasury Committee: ‘The more employment rights, the more automatic enrolment, the more national living wage and the more national insurance you layer onto these things - each of those adds to the incentive to move into self-employment or indeed set up an independent company.’