London Daily

Focus on the big picture.
Wednesday, Jul 29, 2026

Rishi Sunak accused of imposing £21bn ‘stealth tax’ on UK workers

Rishi Sunak accused of imposing £21bn ‘stealth tax’ on UK workers

Rising inflation means four-year freeze on income tax thresholds will raise more than budgeted for, says IFS

Rishi Sunak has been accused of using a “stealth tax” on incomes that will bring in more than double the amount he budgeted for, as the cost of living rises at the fastest rate for three decades.

Ahead of the chancellor’s spring statement to the House of Commons next week, the Institute for Fiscal Studies said rapidly rising inflation means the Treasury could raise £13bn more than anticipated by freezing the income tax personal allowance and higher rate threshold.

It said the four-year freeze, announced by Sunak at the spring budget last year, had been expected to bring in £8bn for the exchequer by dragging millions of workers into paying more tax.

However, the Treasury estimate was based on a far lower inflation rate than now forecast amid Britain’s unfolding cost-of-living emergency. With a dramatic rise in energy bills pencilled in for this April and Russia’s invasion of Ukraine driving up gas prices to record levels, the IFS said freezing the income tax thresholds would now bring in £21bn for the public purse.

Paul Johnson, the director of the IFS, said: “With much higher inflation forecasts, it looks like being a massive £21bn tax rise – two-and-a-half times bigger than intended.”


Under the plan announced last spring, the personal allowance – the level above which workers start paying income tax – will be frozen at £12,570 from the beginning of next month until 2026.

The threshold for higher-rate income tax – when workers start paying 40% instead of the standard 20% rate – will be frozen at £50,270 over the same period.

The plan was controversial with low-tax Conservatives uncomfortable with the chancellor lifting the tax burden to the highest sustained rate since the end of the second world war. However, Sunak has defended the measures as fair and responsible ways to deal with record levels of government debt incurred during the coronavirus pandemic.

At the time of the spring budget, the Office for Budget Responsibility – the Treasury tax and spending watchdog – estimated the plan would bring as many as 1.3 million more people into paying income tax and 1 million more into paying at the higher rate.

Although wages are rising – meaning more people will pay higher rates of tax – pay is failing to keep up with soaring inflation. Official figures show that inflation-adjusted pay, excluding bonuses, fell at the fastest rate in eight years in January.

Experts now say significantly more people will face heftier tax bills. Sam Robinson, a senior researcher at Bright Blue, an independent thinktank for liberal conservatism, said: “Freezing income tax thresholds is a poorly targeted measure, which would increasingly benefit more affluent individuals. After the events of the last few months, we need bold policies that deliver targeted support for those who need it most during this cost-of-living crisis.”

The chancellor is also under pressure to scrap his manifesto-busting rise in national insurance contributions announced last autumn, which is due to come into force next month and is expected to bring in about £12bn. Labour and several prominent Conservative backbenchers have urged Sunak to change course at the spring statement to help Britons with surging living costs.

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said: “We’re facing a horrible stealth tax on our incomes, which will cost us far more than we ever expected.

“Freezing income tax thresholds in a time of wage inflation is going to have a far bigger impact than anyone initially thought, and hit us just as hard as we initially thought the national insurance hike would.”

A Treasury spokesperson said: “Our approach ensures that higher earners contribute more – while the vast majority of taxpayers will still pay the basic rate of tax by 2026.

“We recognise the pressures people are facing with the cost of living and are providing support worth around £21bn this financial year and next to help.”

Newsletter

Related Articles

0:00
0:00
Close
Trump says Israel ‘would not survive’ without US
France Evacuates Atlantic Coast Resorts as Wildfire Risk Rises Again
Magnitude 7.1 Earthquake Strikes Kumamoto as Rescuers Search Collapsed Buildings
OpenAI Faces Demands for Full Disclosure After Models Breach Hugging Face
Apple Briefly Crosses Five Trillion Dollar Valuation as Investors Retreat From AI Bets
Badenoch Offers Tory Votes to Keep Serious Offenders in Prison
Why Americans Queue for $15 Ice Cream and a $100 Caviar Pint
Another AI Genius Left the United States — and Silicon Valley Is Starting to Worry
Shein Reports $99mn Loss as Trade Barriers Test Low-Cost Model
CXMT Gains 466% in China’s Biggest IPO Since 2010
Amazon Seeks Approval for 5,105-Satellite Mobile Network
Burnham Puts School-to-Work Reform at Centre of Welfare Strategy
Johnson & Johnson Agrees to $5.5 Billion Talc Lawsuit Settlement
EU AI Act Shapes Global Corporate Standards, Study Finds
UK-Japan Relations Expected to Deepen Under Burnham Government
Burnham Signals Tough Decisions on Council Tax Reform
UK Inflation Slows to 2.6% in June
Bank of England Holds Interest Rates at 3.75%
Prime Minister Burnham Opens Talks With Business Leaders on Economic Growth
Government Launches 'Number Ten North' to Drive UK Devolution
Labour Regains Poll Lead After Burnham's First Weeks in Office
Prime Minister Burnham Rules Out Early UK General Election Before 2029
Burnham Rules Out Replacing Council Tax and Stamp Duty
Fresh Heatwave Threatens to Rekindle France’s Historic Wildfire Crisis
The Burnham government is seeking to establish its credibility through ambitious social care reform while maintaining fiscal discipline and public confidence in the National Health Service. Labour's early improvement in opinion polls provides political momentum, but sustained support will depend on delivering tangible policy outcomes. Britain continues to reinforce its role in European security through long-term support for Ukraine, while climate-related risks, including increasingly severe wildfires across England and Scotland, are becoming a more prominent national resilience challenge alongside economic uncertainty.
United Kingdom Economy Remains Exposed to Global Energy Risks
Prime Minister Dismisses Calls for an Early General Election
Scottish Wildfires Continue to Stretch Emergency Services
United Kingdom Faces Rising Wildfire Risk as Heatwave Continues
Lower Oil Prices Ease Inflation Concerns and Support Financial Markets
Financial Conduct Authority Launches Consumer Campaign on Car Finance Compensation
Government Prioritises Employment Over Benefit Cuts in Welfare Reform Plans
Prime Minister Rules Out Sweeping Property Tax Changes Before Autumn Budget
AstraZeneca Beats Expectations as Cancer Medicines Drive Strong Profit Growth
Labour Regains Narrow Polling Lead After Burnham's First Week in Office
United Kingdom Reaffirms Long-Term Commitment to Ukraine Under Burnham Government
Prime Minister Andy Burnham Makes Social Care Reform the First Major Test of His Government
Following OpenAI's Cyberattack: 'Most Companies Still Do Not Understand What Is Coming'
Autopsy Finds No Violence in Death of Epstein-Linked Model Scout
Indian Education Minister Resigns After Cockroach Youth Protests
California Desert Data-Centre Plan Stalls as Water and Power Disputes Mount
Northern Ireland Border Security Tightened After Military-Grade Explosive Interception
British Hospitality Sector Targets Summer Visitors Through Regional Promotions
England River Access Debate Intensifies After New Data Shows Limited Public Access
Royal Navy Strengthens Maritime Vigilance Amid Rising Security Concerns
UK Education Department Expands Mental Health Support for Young People Entering Work
UK Tourism Industry Launches Summer Campaigns to Boost Domestic Travel
North England Transport Plans Advance to Support Industrial Growth
Financial Markets Watch New Government’s Economic Strategy as Investors Assess Fiscal Risks
Royal Navy Continues Monitoring Russian Naval Activity Near UK Waters
×