Nearly eight million additional people will be dragged into higher tax brackets despite Rachel Reeves’ commitment to increase quotas based on prices.

The Office for Budget Responsibility (OBR) said a six-year freeze on income tax thresholds introduced by the chancellor’s predecessor Jeremy Hunt would force families to pay an extra £51 billion a year in tax by the end of the decade.

The independent tax and spending watchdog said it would take the number of people paying tax on their income to more than 40 million for the first time.

Rising prices have left workers confronted a stealth raid on their winnings because tax allowances and thresholds were frozen rather than increased based on the cost of living.

This has increased the Treasury’s tax revenue by billions of pounds, as rising wages push more workers into paying income tax or in a higher tax bracket than would otherwise be the case.

The so-called fiscal brake has boosted Treasury coffers by tens of billions of pounds in recent years, following Vladimir Putin’s invasion of Ukraine.

The OBR said higher wages and prices in the short term would mean incomes would be £5 billion a year higher by the end of the decade than just six months ago.

Restrained tax revenues increase

The watchdog now estimates that 4.2 million people will start paying income tax following the freeze which began in 2021, with a further three million people forced to pay the 40p rate and An additional 600,000 forced to pay the highest tax rate by 2027-28. .

The total number of people pushed into higher rate tax brackets is now estimated at 7.8 million people, up from 7.1 million in the OBR’s March forecast.

Ms. Reeves announced the the biggest tax hike budget in history on Wednesday, but chose not to include an extension of the tax threshold freeze in the £40bn raid because it would hit workers.

“After examining this issue closely, I have come to the conclusion that extending the threshold freeze would harm workers. When it comes to tax choices, this government chooses to protect workers every time,” she said.

However, the OBR said revenue generated by the fiscal brake was increasing due to rising wages and prices. He added that Ms Reeves’ £25 billion national insurance raid on employers more than erased Mr Hunt’s decision to cut NI for employees in the previous two tax returns.

The OBR said: “From 2027-28, it is now expected that more than four million additional taxpayers will be taxed as a result of these threshold freezes, meaning the number of taxpayers is expected to exceed 40 million.

“Taken together, the net effect of changes to income tax and NICs over the last four years and at this event is to increase tax revenues by £51 billion by 2029- 30. The tax reductions resulting from the NIC measures in spring 2024 and autumn 2023 are more than offset by the tax increases resulting from changes to employers’ NICs during this event.