Number of UK income tax payers soars by 4.4 million in three years as threshold freezes | Tax & Spending

The number of people needing to pay income tax in Britain has jumped to around 4.4 million in three years due to the government's freeze on thresholds, official data shows, a statistic likely to reignite the election debate on taxes.

The figures show that an additional 1.77 million pensioners have been thrown into income tax brackets due to the ongoing freeze on income tax thresholds, seen by some as a secret tax.

The Conservatives have pledged to increase personal income tax deductions for pensioners by 2028, but have said they will not change the criteria.

According to data from HM Revenue & Customs (HMRC), there will be 37.4 million income tax payers in 2024-25, up from 33 million when the personal income tax limit was frozen in the 2021-22 tax year.

This includes 8.5 million taxpayers over state pension age, 26% more than the 6.7 million recorded in 2021-22.

The Conservatives are likely to use this statistic to promote their tax proposals for pensioners known as Triple Lock Plus, which would tie annual increases in personal allowances for pensioners to pension increases under the so-called Triple Lock, which would be equal to the highest of average earnings growth, inflation or 2.5 per cent.

Labor has not committed to this policy. He also said he would stick to his current plan to keep the tax limit the same until 2028.

Taxes were one of the key battlegrounds of the election campaign, with Rishi Sunnack repeatedly claiming people would pay higher taxes under Labor. Keir Starmer and his team say they will not increase income tax, national insurance premiums or VAT and claim the Conservative manifesto is not adequately funded.

Both major parties have been criticised for being opaque about their tax and spending plans, and the Institute for Fiscal Studies think tank said this week that they were deliberately avoiding the focus on difficult fiscal choices regardless of who wins.

Commentators have repeatedly said that the freeze on the tax cap means that more low-income households will end up paying the basic rate, which starts at $12,570 a year. Increasingly, people are being dragged into the higher rate of 40%, which starts at $50,270 a year in England, Wales and Northern Ireland (Scotland has a different rate and income bracket).

This phenomenon, called financial drag, raises billions of dollars for the Treasury and has been called a secret tax by critics and tax experts.

Overall, the figures show that there will be around 29.5 million basic rate taxpayers in 2024-25, up 2.1 million from 2021-22. The number of high-rate taxpayers in the UK has increased from 4.4 million to 6.31 million over the same period.

Sarah Coles, head of personal finance at investment firm Hargreaves Lansdown, said: The painful pain caused by financial delays and dividend cuts has been laid bare as millions more people pay their taxes and billions more pounds are scraped by.

Commenting on the figures relating to older people, former Pensions Secretary Steve Webb said they showed the number of tax-paying pensioners continued to surge as tax thresholds were frozen and state pensions increased significantly.

This is a continuation of a long-term trend that has seen the number of taxpayers over 65 increase by about 4 million since 2010-11, said Webb, now a partner at insurance maths firm LCP. He said for UK pensioners being income tax payers was now the norm rather than the exception.

A recent LCP analysis found that fewer than 2.5 million pensioners currently receive state pensions, which is more than their personal tax deductions. Most of these were existing basic pensioners who were eligible for an additional state pension, also known as the State Serps or State Secondary Pension.

Rachel Griffin, tax and financial planning expert at wealth management firm Quilter, said: This morning’s figures from HMRC show that the Tory government’s hidden tax policies are still having an impact, with the number of people falling into higher and higher tax brackets soaring as a result of the frozen tax cap and ongoing financial pressures.

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