Rachel Reeves could unleash £24billion of stealth tax HIKES and spending cuts this year, economists warn
RACHEL Reeves could unleash £24billion of tax hikes and spending cuts this year after her Budget buffer evaporated, economists have warned.
Goldman Sachs predicted the Chancellor to make £10billion of savings at the Spring Statement later this month.
She is expected to take an axe to the country’s bloated welfare bill, as well as squeeze government departments.
But the top bank also reckoned that sluggish growth could force Ms Reeves to return for a further £14billion in tax rises and spending cuts later in the year.
Its economist James Moberly warned this could manifest in stealth taxes that freezes tax thresholds so drags more people into paying higher rates, according to the Telegraph.
Poor growth and stubborn inflation has wiped out the £10billion of headroom Ms Reeves accrued in her autumn Budget.
The number of higher-rate taxpayers topped five million for the first time, as a freeze on thresholds saw more earners dragged into the higher tax band.
In the 2022-23 tax year, there were 5.1 million people paying the higher rate – amounting to 680,000, or 15.3 , more than the previous year.
In comparison, five years earlier, there were 4.2 million people paying the higher rate.
An income tax rate of 40 per cent applies to earnings over £50,271. This threshold has been frozen at the 2021-22 level and will remain in place until April 2028.
Previously, most thresholds were due to rise in line with inflation – but the freeze, introduced by the previous Conservative government, meant more people were dragged into a higher tax bracket if their earnings grew.
HMRC’s figures, which are the most up to date, recognise that so-called “fiscal drag” is behind the latest surge in higher-rate taxpayers.
Higher-rate taxpayers made up 15 per cent of all taxpayers and accounted for 35 per cent of the total amount raised by the Government from income tax in 2022-23.
The number of people paying the additional tax rate also rose to 600,000 in 2022-23 – 9.5 per cent more than the prior year.
The additional rate of 45 per cent is placed on earnings over £125,140.