Families facing £290 tax hike next year despite 1p cut, new analysis reveals

EMBARGO: Immediate Release

A typical family will see their taxes hiked by £290 next year despite the 1p tax cut, new research by the Liberal Democrats has revealed, while top bankers are handed a tax giveaway of over £100,000.

It comes as analysis shows the total tax hit from the Conservative government’s freeze on income tax thresholds is now set to reach £32.4 billion over the next two years - £6.5 billion more than previously expected. The figures are based on an update of the OBR’s previous forecasts undertaken by the House of Commons Library, taking into account soaring inflation.

Liberal Democrat research shows a household with two adults paid the median salary of £31,876 will pay an additional £290 in income tax next year as a result of the freeze, despite the basic rate being reduced from 20% to 19%. This tax bill will rise to £590 by 2024-25, due to the tax threshold remaining frozen as inflation goes even higher.

A teacher on a starting salary of £25,700 will see their taxes rise by £121 next year (2023/24), once the freeze of the income tax threshold is taken into account, while an NHS nurse will see a £107 rise.

Meanwhile, a top banker earning £2.5 million will see a tax cut of over £117,000. It means the Conservative government’s tax giveaway to one top-earning banker would be enough to cancel the tax hike for over 1,000 nurses.

Liberal Democrat Leader Ed Davey said:

“It is staggeringly unfair that this Conservative government is hiking taxes on struggling families while giving big businesses and banks a massive tax giveaway.

“Cutting taxes for the most wealthy while hammering ordinary people with years of stealth taxes shows just how out of touch this government has become.

“The facts are clear: Liz Truss and the Conservatives are only cutting taxes for the few, while millions of people will pay more.”

ENDS

Notes to Editor:

House of Commons Library research on the total tax hit from the government’s freezing of income tax thresholds is available here.

According to the latest ONS statistics, average weekly earnings currently stand at £613 a week, or £31,876 a year. A household of two such earners will pay an additional £290 in income tax in 2023-24, compared to what they would have paid if income tax thresholds weren’t frozen; and £590 in 2024-25.

If it weren’t for the threshold freeze, the personal allowance and basic rate limit would have been uprated by 3.1% in April 2022; 10% in April 2023; and a forecast 5.2% in April 2024.

Calculations on teachers, nurses and a top banker on £2.5 million are available here. This is based on the total impact of the government’s changes to income tax including the 1p tax cut and the freezing of tax thresholds until 2025/26. Full explainer is available here.

First reported in the Sunday Telegraph and Observer.