Steven Cameron, Pensions Director at Aegon comments: “The IFS have published analysis on the extent that the freezes to allowances in the tax system are dragging more people into paying tax. With inflation hovering around 10%, the freezing of income tax thresholds until 2026 is becoming an increasingly pressing issue. Not only does the value of the thresholds reduce in real terms but as wages rise people pay more tax on more of their income.
“The government’s decision in the ‘mini-Budget’ to bring forward the cut the basic rate of income tax from 20% to 19% from April 2023 will provide a small boost for some, but for most it will fail to compensate for the frozen thresholds. Unfreezing the income tax thresholds would be a more powerful lever to support lower and modest earning households.
“Aegon analysis shows that for anyone earning under £37,670, increasing the basic rate threshold by 10%, around the current rate of inflation, would offer a greater saving than cutting the rate of income tax from 20% to 19%. This would save people earning above £13,827 around £250 over a year in income tax**.
*https://ifs.org.uk/news/every-ps1-given-households-through-headline-cuts-taxes-ps2-being-taken-away-stealthy-freezes
**Analysis based on the basic rate of income tax of 20% in England.
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