Tax hikes and soaring bills to deliver £1,660 ‘pay cut' for UK's average earners

Tax hikes and soaring bills will deliver the biggest shock to household incomes for almost half a century, and risk knocking the UK’s fragile economic recovery off course, experts have warned.

- BEN CHAPMAN

1.2 million More low earners will pay income tax from this

A person earning £30,000 will see their take-home pay plunge by £1,660 thanks to soaring living costs, stagnant wages and tax increases, according to new calculations by the Institute for Fiscal Studies (IFS).

The effective pay cut includes paying £250 more in national insurance contributions and £150 more in income tax. Poorer households, which spend more of their incomes on essentials like energy, will be hit even harder, with hundreds of thousands expected to fall into fuel poverty. Someone earning £15,000 a year will take an £860 hit to their real income after tax, the IFS calculated.

It means households now face the biggest sustained reduction in their disposable incomes since the 1970s.

Citizens Advice warned people were being forced to make “desperate decisions” between eating or heating their homes. “With the hefty blow of further price hikes in April, things are set to go from bad to worse,” said the organisation’s head of policy, Morgan Wild.

Budgets are set to be hit by a 50 per cent jump in energy bills in April when a revised price cap level is enforced, while households that were on cheaper fixed-rate tariffs will see their bills double.