Stealth tax grab: average worker's Income Tax bill soars 41% in just 4 years

Shocking impact of the Government’s stealth tax grab laid bare as the typical worker now pays £1,568 more Income Tax than in 2021.

Workers have seen a dramatic increase in their Income Tax bills in recent years as a result of the ongoing stealth tax grab, our analysis can reveal.

Back in 2021, the Government announced it would no longer be increasing the thresholds at which Income Tax would apply.

Normally, these increase regularly to reflect rising wages and inflation, ensuring the proportion of our wages that we pay through Income Tax remains broadly the same.

By freezing these thresholds in 2021 at £12,570 for the tax-free Personal Allowance and £50,270 for the Higher Rate – while also cutting the Additional Rate to £125,140 in 2023 – the Government ensured earners would be paying far more Income Tax each year.

Initially announced as a four-year freeze, the then-Government announced in 2022 that it would be extending it by an extra two years, until 2027/28.

How our Income Tax bills are soaring

The impact has been stark: our analysis shows the amount paid in Income Tax by a worker on the average UK salary has increased 41%, or £1,568, in four years.

During that time, wages only increased by 25%, from £31,349 to £39,189, meaning Income Tax is taking a proportionally larger share of wages.

In 2021, this tax made up 11.9% of the average earner's salary, but this had jumped to 13.2% in 2024 and 13.5% based on the latest wage estimates.

In fact, analysis by the Office for Budget Responsibility back in 2023 estimated that, by 2027/28, the stealth tax freeze will be equivalent to a 4p increase in the Basic Rate of Income Tax (from 20% to 24%).

We should note that the decision to cut NI by 2% last year has helped offset some of this increase, especially for lower earners.

How much Income Tax the average earner pays**

*Provisional figures based on latest available quarterly wage stats
**Figures for those living in Scotland will vary slightly

Could the average earner become a ‘high earner’ by default?

In an environment of strong wage growth and frozen allowances, the average salary is fast closing the gap to the Higher Rate of Income Tax threshold.

This is set at £50,270 and is effectively the point at which the Government would consider someone a ‘high earner’

If we look at the rate at which wages have increased between 2021 and 2024 and assume a similar rise continues until the allowance freeze ends in 2028, the average worker would be earning around £45,000 at that point.

That’s just £5,000 off the Higher Rate threshold.

Interestingly, there are rumours that the chancellor is considering extending the freeze on both the Basic Rate and Higher Rate tax thresholds in next month’s Budget.

If that comes to pass and wages do continue rising at their current rate, then we could see the remarkable situation where the ‘average’ earner would be paying the Higher Rate of tax as their wages exceed the £50,270 threshold.

This is clearly all hypothetical, as we don’t know whether wages will keep rising at such a rapid rate and whether the freeze will be extended once more, but it does highlight how out of touch the thresholds become the longer it remains in place.

Income Tax receipts soaring

Having looked at how workers' tax bills have changed, let’s now look at what this has meant for public finances.

Income Tax is the biggest earner for the Government by some distance, making up around 27% of its total revenue in 2024.

The amount it brings in has unsurprisingly been soaring since 2021, and looks set to keep doing so until 2028, as the table below shows.

Confirmed and estimated Income Tax receipts: 2021-2028

Source: OBR
*Estimated figures

This growth in Income Tax receipts is not just down to overall growth in the economy and more people paying into the system.

While these have played a part, it is the stealth tax grab that has played by far the largest part, as is illustrated in the graphic below from data site Statista.

In the 10 years between 2011/12 and 2021/22 when tax thresholds increased regularly, Income Tax receipts increased by just over £69 billion, or 46%.

In just three years since allowances were frozen, revenue has jumped nearly £81 billion or 37%.

Income Tax receipts: impact of the 2021 stealth tax grab

Find more statistics at Statista

Is there anything you can do about the tax grab?

Sadly, there isn’t really any way to avoid paying more Income Tax as your earnings rise.

For those in employment, you could consider paying more into your pension each tax year.

By sacrificing some of your salary, you can bring, or keep, your salary below a certain tax threshold, for example..

For pensioners, we’ve also highlighted some of the steps you can take to avoid the ‘retirement tax’ here.