A million more workers will pay income tax this year as Burnham backtracks on personal allowance increase

A million more workers and pensioners will have to pay income tax this year as Andy Burnham backtracks on his plans to increase the personal allowance.

A freeze in the tax thresholds since 2021, which is due to remain until 2030/31, has dragged millions of people into paying tax as wages grow.

HMRC estimates the number of basic-rate taxpayers will increase to 31.4million, from 27.4million in the year the freeze was implemented.

And fresh analysis by the Taxpayers’ Alliance has found that 1million more people will pay £640 more on average in income tax this year compared to two years ago.

It comes as the Prime Minister u-turned on his promise to look at increasing the £12,570 tax-free personal allowance to prevent more people being dragged into the tax net, as analysis shows 500,000 more Britons will have to pay the basic rate of tax this year.

Mr Burnham told The Times over the weekend that ‘frustration over the personal allowance’ he had heard during his Makerfield by-election campaign had ‘lodged in my mind’.

He told reporters on Monday that the issue would be ‘looked at’ in the autumn budget but accepted a change would be expensive. 

His allies have since said that the Prime Minister had not made any commitment and were not part of a package of cost-of-living measures announced this week.

Fiscal drag – the phenomenon in which allowances and thresholds do not rise with wages– has become an important revenue raiser for the Treasury.

The new Prime Minister is unlikely to want to sacrifice the £55billion in tax revenues the freeze is expected to raise by 2030 or bear the expected £9billion cost to uprate it in line with inflation.

If the personal allowance had risen in line with inflation, it would sit at £17,380.

This stealth tax raid is also hitting higher earners just as hard with 410,000 more expected to pay the higher rate of tax on a portion of their income as their salaries exceed £50,270, according to the Taxpayers’ Alliance. 

There will be an additional 70,000 additional-rate taxpayers in the current year, too.

The freeze on thresholds has hit pensioners particularly hard as the triple lock increases the state pension to within a whisker of the £12,570 allowance.

The Taxpayers’ Alliance’s analysis shows that the number of pensioners liable for income tax will jump by 630,000 to 10.2million this year.

John O’Connell, chief executive of the Taxpayers’ Alliance said: ‘A million more Britons are being caught in the taxman’s net by stealth.

‘Freezing thresholds lets ministers rake in billions without admitting they have raised taxes, hitting workers, pensioners and families across the country.

‘If Andy Burnham really wants to give hard-working taxpayers breathing space, he should end fiscal drag and unfreeze tax thresholds.’

Burnham has been a vocal advocate of wealth taxes on higher earners, but TPA’s analysis reveals that the top one per cent of income taxpayers are expected to earn 12.8 per cent of total income and pay 26.6 per cent of income tax.

And those in London and the South East have the highest number of additional and higher rate taxpayers.

A quarter of taxpayers in the capital pay the higher rate of tax, compared to 14.4 per cent in the North East.