Nearly 2.6 million people in London and the South East will have been dragged into paying higher rates of income tax if as expected Rachel Reeves extends the freeze on thresholds for another two years.
The Chancellor is set to continue the “stealth tax” policy first introduced in 2022 by Rishi Sunak, when he was at the helm of the Treasury, until 2029/30.
The 20% basic rate of income tax is paid on income from £12,571 to £50,270, and the 40% higher rate on income from £50,271 to £125,140.
Freezing the thresholds mean more people are dragged into paying income tax for the first time, or the higher rate, as their wages rise.
In London, there are due to be 700,000 more higher rate payers by 2027/28 under the six-year Tory freeze, with a further 110,000 if Ms Reeves extends the policy for another two years, a total of 810,000.
There would also be 400,000 more basic rate payers by 2027/28 in the capital, and a further 60,000 by 2029/30, according to figures from the House of Commons Library commissioned by the Liberal Democrats.
So overall, 1,270,000 people in London will have been caught by the stealth tax trap over eight years.
In the wider South East, there are set to be 600,000 more higher rate payers by 2027/28, and a further 120,000 by 2029/30, totalling 720,000.
In addition, there would be 500,000 more basic rate payers by 2027/28 and a further 80,000 by 2029/30.
Overall, this would have meant 2,570,000 people in London and the wider South East having been dragged into paying higher rates of income tax over eight years.
Liberal Democrat Treasury spokesperson Daisy Cooper said: “Rachel Reeves once accused the Conservatives of ‘picking the pockets’ of working people by freezing tax thresholds — now Labour plans to do exactly the same.
“That’s rank hypocrisy.
“Families across the country are fed up with being milked for their hard-earned cash.”
Ms Reeves has pledged to get a grip on the cost of living in her Budget next week, which also aims to cut NHS waiting lists and the nation’s debt.
"There is an urgent need to ease the pressure on households now. It will require direct action by this Government to get inflation under control," she said.
A Treasury spokesperson added: “We will deliver a Budget that boosts growth and cuts the cost of living, having already delivered a record rise to the National Minimum Wage and National Living Wage, extended the £3 bus fare cap, and expanded free school meals, breakfast clubs and free childcare.”
However, in the Budget on November 26, the Labour Chancellor is set to unveil a series of higher and new taxes after ditching her plan for a manifesto-busting rise in the rate of income tax.
She is to target owners of expensive homes with a “mansion tax”, or by super-charging the top rates of council tax, a move which will hit London hardest, as she seeks to plug a shortfall of around £20 billion in the public finances.
Some measures, though, will particularly benefit the capital such as the freeze on rail fares which could save London commuters up to £350 a year.
Tens of thousands of families in the city, many of them in the most deprived boroughs, will also be boosted from the expected lifting of the two-child benefit cap which is set to cost more than £3 billion.
The move will be welcomed by many Labour MPs but the Tories are accusing the Government of hiking taxes to hand out more in benefits, having failed in its planned welfare reforms.
Other measures in the Budget are believed to include a new pay-per-mile scheme for electric vehicle drivers, scaling back a salary sacrifice pension scheme, and giving Sir Sadiq Khan and other city mayors the power to impose a tourist tax.
As she tries to make her sums add up, Ms Reeves is also seeking a further £1.2 billion of savings by cutting down on benefit fraud and error by 2031.
