Income tax thresholds, which have been frozen under successive chancellors, are expected to start to rise again after 2031. John Healey may not have mentioned this change in his Budget speech - after all, it is still some way off - but according to the documents released by the Office for Budget Responsibility (OBR) this policy, which has been shaving additional tax off people's take-home pay for the past five years, is scheduled to end. The proportion of your income that is taken in tax will continue to go up over the next four years in line with decisions made in previous Budgets.
But then the personal allowance - the point at which you start to pay tax - and other thresholds, where you tip into paying a higher rate of tax, will rise again with inflation, meaning you keep more of what you earn. Freezing thresholds is often dubbed a stealth tax because, unlike raising the headline rates, it is not as obvious on your payslip. It has been a useful way for chancellors from Rishi Sunak onwards to raise more money to help pay for things like defence, the NHS, schools and support for the sick, disabled and the elderly.
They hit you hardest if your income is close to one of the tax thresholds, but anyone who gets a pay rise is affected, as long as you earn enough to pay tax. Only people earning under £12,570 - the personal allowance threshold - pay no income tax. The state pension is currently just below the personal allowance threshold, and pensioners looked set to be drawn into paying tax from next April, when the basic state pension rises to £13,036.
However, the chancellor is putting in place a new separate Pension Tax Allowance, which will mean that anyone who gets an income only from the state pension will not pay tax on it. The personal allowance threshold is set for the whole UK, so people in Scotland will also be affected, although other tax bands there vary, external. National Insurance Contributions (Nics) are levied according to the same thresholds.
Your pay, energy bills and savings: How the Budget affects you Wages usually go up year-on-year to cover the rising cost of living. Normally tax thresholds would also be raised in line with rising prices. Currently that isn't happening - the thresholds have been "frozen" at 2021 levels.
So, as your pay rises, a bigger proportion of it ends up above the threshold where you start to pay tax. As incomes rise, frozen thresholds also mean more and more people are dragged into the higher, 40%, tax bracket. If you are earning just under the £50,271 threshold and your pay rises with inflation, some of your earnings will start to be taxed at the higher rate.
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