High inflation has pushed up the projected revenue take from the Government’s personal tax threshold freeze to £25 billion by 2027-28, according to a think tank.
With the 2023/24 tax year starting on April 6, the Resolution Foundation analysed the personal tax and benefit changes taking effect.
Its report said: “Perhaps the most important piece of personal tax policy in 2023-24, though, is the decision not to raise the starting point for income tax and personal national insurance, nor the higher rate threshold.
“These remain frozen at £12,570 and £50,270 respectively, and are set not to rise before April 2028.
“If the usual CPI (Consumer Prices Index) uprating had happened this April, then those thresholds would be rising by 10.1% to £13,840 and £55,340.
“For a basic-rate paying employee, that change would have been worth just over £400 (including national insurance, or £250 without), while a higher-rate payer would have gained over £900 overall.”
The report looked at the potential difference to revenue from income tax and national insurance, if the two main tax thresholds went up in line with inflation each year, rather than being frozen.
It said: “The six-year freeze as a whole is now projected to raise £25 billion in 2027-28.”
Many benefits and the state pension are rising by 10.1% in the new tax year.
More than eight million households receiving means-tested benefits will also benefit from enhanced cost-of-living payments in 2023-24, worth £900 over the next year.
Pensioners and those receiving disability benefits will see their additional payments repeated in 2023-24 and many workers will benefit from a 9.7% rise in the National Living Wage from April.
These increases will be crucial for low-income households to cover rising costs, the Foundation said.
It said the average B and D council tax bill in England will rise by 5.1% in April, equivalent to £99, while low-income households that rent remain under pressure from the continued freeze of the local housing allowance.
Higher-income households will bear the brunt of April’s tax changes, according to the Foundation, whose work is focused on improving living standards for those on low to middle incomes.
The starting point for the top rate of income tax will fall from £150,000 to £125,140, while the dividend allowance and capital gains tax annual exempt amount are being cut.
The dividend allowance is falling from £2,000 to £1,000 and then £500 next year and the capital gains tax annual exempt amount is falling from £12,300 to £6,000 and then £3,000 next year.
The reduction in income tax thresholds and dividend allowance will cost the top 5% of the population £2,000 on average, equivalent to an income reduction of around 1%, the Foundation said.
The Foundation said that, taken together, the tax and benefit changes taking place from April will provide significant support for lower-income households during the cost-of-living crisis.
The poorest tenth of the population are set to gain £500 on average next year, compared with a loss of £100 for a typical household, and a loss of £1,500 for the richest tenth.
Adam Corlett, principal economist at the Resolution Foundation, said: “High inflation has pushed up the projected revenue take from the Government’s personal tax threshold freeze to £25 billion a year – almost triple the amount forecast when the freeze was introduced.”
He added: “The myriad tax and benefit changes introduced this April highlight the challenges of such a patchwork approach to policy, which relies on short-term support schemes, stealth tax rises, and an unfair council tax system.
“Difficult decisions on tax and spending policies lie ahead, but policymakers should be honest with voters about the trade-offs of these decisions.”
The Liberal Democrats are calling for the energy price guarantee to be cut to £1,971 and for the warm home discount and winter fuel payments to be doubled.
This would be paid for through a windfall tax on the oil and gas companies and a tax on the bonuses of their senior executives, the party said.
Lib Dem treasury spokesperson Sarah Olney said: “Now more than ever, hard-working people deserve a fair deal.”
A Treasury spokesman said: “After borrowing £400 billion to help the country through the pandemic and (Russian President Vladimir) Putin’s energy price shock, we have had to take some difficult decisions to balance the nation’s books and to halve inflation this year.
“To help families with the cost of living, we are providing £3,300 of support on average per household this year and next – funded through windfall taxes on energy profits.
“For the first time ever, people can now earn £1,000 a month without paying a penny in income tax and national insurance.
“Thanks to a decade of tax reform, we have taken millions out of paying tax altogether.”