How to offset the 'highest tax burden in 70 years'

FISCAL drag is the oldest trick in the Treasury’s book and Chancellor Rachel Reeves is deploying it to raise taxes on a scale we've never seen before.

- By Harvey Jones

While Labour pretends to stick to its election pledge not to hike the “big three” levies: income tax, National Insurance and VAT, Reeves is letting frozen tax thresholds do the work.

As wages rise with inflation, millions are dragged into higher tax bands, paying more every year. It’s silent, subtle and staggeringly costly.

TAXING

Britons will hand over £298.6billion in income tax this financial year, a jaw-dropping £89billion more than just four years ago, when the then-Conservative government first froze the personal allowance and higher-rate income tax thresholds.

Since then, the number of income taxpayers has jumped by 6.1million, HMRC figures show. More than 2.5million now pay the 40% higher rate who didn’t before, while the number paying the 45% rate has more than doubled to 1.23million.

Tom Goddard, senior associate at accountants Blick Rothenberg, said fiscal drag is a "form of stealth tax" that hits middle earners hardest.

"The responsibility for addressing the Government's deficit looks likely to fall on their shoulders."

It is not just income that is being hit. Tax on savings interest has soared almost five-fold in four years, from £1.4billion to £6.1billion, as interest rates rise and the frozen personal savings allowance fails to keep pace.

Dividend tax receipts have jumped from £14.7billion to £18.6billion, while inheritance tax revenues are climbing too, up 10.5% in a year as they creep towards £10billion a year and beyond.