‘Stealth Taxes’ on Middle Classes Will See Families £40,000 Worse Off Over Next Decade: Report

Britain's Chancellor of the Exchequer Jeremy Hunt (R) reacts during the Lord Mayor&#0
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Oliver JJ Lane

The British middle class will be rinsed by the government for tax money over the next decade in a ‘stealth’ grab that will leave some families a considerable £40,000-plus (~$48,000) worse off.

The British government is using now-soaring inflation to drag middle-class workers into higher tax bands that were once meant to punish the rich for being high earners, considerably increasing the tax take without having to take the publicity hit of imposing new taxes on the middle class.

Now a study has looked at how much money this ‘stealth tax’ of frozen tax thresholds will cost, and found that a middle-class family with two earners on £60,000 a year each will be £40,000 worse off over the next decade.

Even the less well-paid will be punished by the government, with someone on an average £33,000 salary finding themselves working 42 extra days just to pay their tax bill over the next decade.

British newspaper of record The Times reports the findings from the House of Commons Library commissioned by the Liberal Democrats, who say this grab will create a “lost decade of unfair tax hikes and soaring inflation”.

Suggesting “the big banks” should be taxed instead of families, Lib Dem leader Sir Ed Davey suggested — probably wrongly — that this could have been avoided with some relatively minor changes to recent policy, rather than looking to the broader sweep of decades of massive government overspend.

The paper reports:

[A] worker earning £60,000 a year will pay more than £134,000 in income tax during the next decade. That tax bill is 18 per cent higher than it would have been had the thresholds not been frozen, meaning the worker will be £20,440 worse off.

These ‘stealth’ tax rises are possible because, under the British tax code, different bands of income tax are judged on absolute income amounts.

This means that, at the moment, those earning up to £12,570 pay no tax, the ‘basic’ 20 per cent rate is paid from there to £50,270, the ‘higher’ 40 per cent rate from £50,270 to £150,000, and finally a punishment ‘additional’ rate of 45 per cent on earnings beyond that.

While the short-lived Liz Truss administration planned to abolish the ‘additional’ rate, which did not exist until the dying days of the previous Labour government in 2010, the new Rishi Sunak administration will actually expand it to catch more people, by starting it at £125,140 instead of £150,000.

If this system was meant to be fair, all of these ‘bands’ would slowly rise every year as the value of money is eroded through the gradual grind of inflation. Instead, the government under Chancellor of the Exchequer Jeremy Hunt has decided to freeze the bands until 2028, meaning no matter how high inflation pushes the sterling-value of wages, taxes won’t change to suit: dragging more and more lower earners into higher tax bands.

These middle-class workers have not become more wealthy, of course — quite the opposite — but the Conservative Party government has weaponised tax bands created for the rich to squeeze the middle.

The Times cites TaxPayers’ Alliance chief John O’Connell as saying of this phenomenon: “Families feeling the pinch will be acutely aware of the taxman taking even bigger lumps out of their household incomes… The 40p rate was supposed to be for those on the highest incomes, but instead it’s becoming relatively normal for taxpayers who certainly wouldn’t consider themselves as well off.

This effect is called ‘fiscal drag’ and is by no means a new phenomenon. Indeed, as reported by Breitbart London back in 2014, a decades-old tax band meant to punish only the very wealthy was by then already taking the hard-earned income of lower-earning professions like teachers and police officers.

While 3.6 million people were higher-rate taxpayers in 2014 — already a staggeringly high amount given it was created to only punish the wealthy — it has been predicted to rise to 7.7 million by 2026.

The IFS says of fiscal drag:

These [tax band] freezes – which represent a stealthy and arbitrary way to raise tax revenue – often have a bigger impact on household incomes than more eye-catching discretionary measures… freezes reduce the transparency of tax and benefit reforms, allowing the size of the system to be changed by stealth.

All told, UK taxes are now levied at a point not seen since the 1940s, when the country had just finished fighting the Second World War. They are also rising at a higher rate than other countries, seeing the second-highest increase among top economies in 2021.

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