UK Government tax threshold freeze to cost Wales £500m in five years, new research shows

The UK Government’s decision to freeze tax thresholds will cost the average family in Wales £370 a year by 2026, or a total of £500 million, analysis by the House of Commons Library has shown.

The figures show the cost to families of the UK Treasury’s decision to freeze the personal tax allowance at £12,570 and higher rate tax threshold at £50,270 until 2025/26, which the Liberal Democrats, who commissioned the research, say will “compound the growing cost of living crisis”.

The new analysis by the House of Commons Library has found an additional 85,000 people on low pay in Wales will be paying income tax by 2026, while a further 55,000 people in Wales will be paying the higher rate tax bracket, compared to if the threshold had not been frozen.

London and the South East of England are expected to be the hardest hit, with losses of around £500 per household. The total cost to households across the UK, excluding Scotland, of the freezes will be £10.9 billion in 2025/26, it says.

The research is based on modelling using the latest inflation forecasts from the Office of Budgetary Responsibility, they said.

This means that throughout Wales, household disposable incomes are set to be 1 per cent lower in 2025/26 than they would be if there was no freeze to income tax thresholds, or £370 lower per household.

Chancellor Rishi Sunak has argued it would be irresponsible to “duck difficult decisions” on government finances.

Bt the Welsh Liberal Democrats said that the UK Government should drop the planned “stealth tax raid” in order to help families cope with rising energy bills and general inflation. This would mean that the tax thresholds increase in line with inflation.

‘Stealth tax’

Welsh Liberal Democrat Leader Jane Dodds MS said: “Boris Johnson and Rishi Sunak must drop this unfair stealth tax that will clobber families who are already feeling the pinch.

“People are worried about the rising cost of living and paying their energy bills this winter. Now they face years of tax rises under a Conservative government that is taking them for granted time and time again.

“Making matters worst the Government is introducing a national insurance tax rise on top of this stealth tax and rapid energy price increases, doing so against the wishes of his own backbenchers in the Conservative Party.

“It is no wonder many lifelong Conservative voters from Aberconwy, to Powys, to Monmouthshire feel this government no longer represents them. Many of them are now turning to the Welsh Liberal Democrats instead.”

It was reported that Jacob Rees-Mogg told the Chancellor during Wednesday’s Cabinet meeting that the National Insurance hike should be scrapped in order to mitigate against the cost-of-living crisis as inflation and energy bills rise.

But speaking during a visit to a vaccination centre in Haywards Heath, West Sussex, on Thursday, Chancellor Rishi Sunak said: “I have enormous respect for all my colleagues and if you take a step back and look back at why we’re in this situation, it’s because we’re facing an unprecedented level of backlogs in the NHS and we as a Government don’t think it’s acceptable, we don’t want families to be waiting years and years to get the treatment they need.

“It’s always easy to duck difficult decisions but I don’t think that’s the responsible thing to do.”