According to the Institute of Fiscal Studies (IFS), taxpayers will pay more as they are dragged into higher tax bands by frozen thresholds. In an analysis published on Friday, the think tank said the lowest and the highest earning taxpayers will both see their overall taxes rise because of frozen tax thresholds. The IFS director has also predicted a ‘lack of clarity’ from political parties about the financial choices that lie ahead.
Although the National Insurance contributions (NICs) rate is set to be cut, the IFS said personal taxes will still rise for many in 2024. The analysis showed that only those on average earnings will enjoy an overall tax reduction due to the NIC cuts, while the benefit for others will be more than offset by frozen tax allowances and thresholds. Freezing tax thresholds instead of letting them rise with inflation means that more people will be dragged into a different tax band, resulting in higher taxes.
IFS projections show that because the threshold freeze is set to last until the year 2027/28, average earners will also have a larger tax burden. Labour leader Sir Keir Starmer has refused to promise to unfreeze tax thresholds if his party gets into government, while also stating that he would reverse the change if the Conservative government reduces inheritance tax. The IFS has also previously said Prime Minister Rishi Sunak is set to preside over the biggest tax increase since the Second World War.
Given this context, the IFS director expressed skepticism about any promise of tax cuts, saying that with the state of the public finances and the focus on reducing overall national debt, any tax cut implies spending cuts. Looking ahead to the next general election, the IFS Director suggested that a lack of clarity from both main parties about the financial choices that lie ahead “is something we’re going to get used to over the coming year,” adding that an overall tax cut implies more austerity on public services.