Some 170,000 Londoners face losing hundreds of pounds a year if the predicted freeze on income tax thresholds is extended by the Chancellor, it was warned today.
Rachel Reeves admitted during the Labour Party Conference this week that she no longer stands by her pledge last year not to raise taxes, saying that “the world has changed”.
Tens of thousands of workers in the capital will either begin paying income tax for the first time or be pushed into the higher 40p rate by 2029/30 if she extends the freeze on income tax thresholds at the upcoming Budget, according to research commissioned by the Liberal Democrats.
That includes 60,000 people on low incomes, currently earning under £12,570, who would be caught by the basic 20p rate, the party said.
Those in a higher tax bracket stand to lose an average of £350 a year by the end of the decade if the freeze goes ahead.
The Lib Dems urged Labour to rule out extending the freeze ahead of the November 26 Budget, describing the policy as a “stealth tax” that would hit families hard.
Bobby Dean, Lib Dem MP for Carshalton and Wallington, said: “Housing and living costs in our city are through the roof as many people are struggling to get by.
“Yet now, 170,000 Londoners risk having their earnings ripped from their pockets at a time where every penny counts.
“Extending stealth taxes would be catastrophic for working families across the Capital, and a move straight from the Conservatives’ playbook. This is certainly not the change Londoners were promised.
“The Government could turbocharge our economy by striking a truly ambitious deal with Europe, instead of hammering working people. Labour must stick to their word and urgently rule out extending these stealth taxes ahead of the Budget.”
In 2021, then Chancellor, Rishi Sunak announced the income tax personal allowance and higher rate threshold would be frozen from April 2022 until April 2026.
The following year, Jeremy Hunt who was then Chancellor announced the freeze would be extended for a further two years until 2028.
In the Budget last October, Ms Reeves said the freeze would be lifted from 2028-29.
“Extending the threshold freeze would hurt working people,” she said.
But in recent months ministers have declined to repeat her promise.
This week Ms Reeves has spent much of the Labour Conference in Liverpool fending off questions about tax rises.
She admitted there would need to be revenue raises in her Budget as she seeks to plug a reported £30billion blackhole in Britain’s finances.
Ms Reeves told the BBC: “Look, I think everyone can see in the last year that the world has changed, and we’re not immune to that change.
“Whether it is wars in Europe and the Middle East, whether it is increased barriers to trade because of tariffs coming from the United States, whether it is the global cost of borrowing, we’re not immune to any of those things.”
However, she strongly hinted that an increase in VAT was not in her plans, leading to further speculation over the possibility that the freeze on income tax thresholds could be extended.
Hitting out at Budget speculation, the Chancellor added: “There are a lot of people who claim to know what is going to be in my Budget. They don’t.
“A lot of them are talking rubbish, and frankly, a lot of it is very irresponsible. People were told last year that I was going to do this, I was going to do that, and people made decisions with their money that often were irreversible decisions.”
