Sunak's hidden tax raid is equivalent to an extra 6p in income tax, says IFS

Rishi Sunak presided over the biggest tax increase in any Parliament since the Second World War. Photo: HANNAH MCKAY/POOL/AFP via Getty Images

Rishi Sunak's secret tax raid is equivalent to a 6p rise in income tax and will cost the public an extra £52 billion a year by 2027, according to a leading think tank.

By the end of the decade One in six UK adults will pay a higher or additional rate of income tax, up from 4 per cent in the 1990s.

The change is due to the so-called «fiscal brake», which pushes people into higher income taxes as wages increase.

Tax breaks usually rise with inflation but were frozen by Mr Sunak in 2021 while he was chancellor. The freeze was originally expected to raise £8 billion a year by the end of Parliament and would last until 2026.

However, soaring inflation since then has seen tax revenue from the policy soar as more people frozen has increased sharply.

Jeremy Hunt has extended the moratorium until 2028 and expanded it to include national insurance contribution thresholds.

Paul Johnson, director of the IFS, called the jump in the tax burden “extraordinary.”

The think tank said: “Other ways to raise the estimated £52 billion in revenue include increasing the basic and higher rate of income tax by 6p or increasing the basic rate of VAT from 20% to 26%.

The IFS analysis is being carried out at the moment as Mr Sunak faces pressure to cut taxes ahead of the next election as the Prime Minister presides over the biggest tax increase in any parliament since the Second World War.

However, Mr Johnson said the government was in «dire financial straits» and had no room to cut taxes or increase public spending.

He said: «With taxes at record levels and government revenues With non-interest spending projected to exceed non-interest spending for the first time in a generation, expect there to be plenty of room to either cut taxes or increase spending.»

“But weak economic growth and very high interest costs on debt over the next few years mean public debt will be stuck at around 100% of national income, even with tough spending provisions and further significant tax rises. The cost of our high debt levels, failure to stimulate economic growth, and high borrowing costs will likely be a prolonged period of high taxes and limited spending.»

The think tank warned that interest costs on debt were now expected to stabilize at their highest sustainable level since the mid-1980s as interest rates remained high for a long time, representing a continued rise of £30 billion in year.

Mr Hunt promised last week to reduce the tax burden. but the Chancellor admitted he had to make “difficult decisions” in his autumn statement next month.

A Treasury spokesman said: “After we began supporting families and businesses through the pandemic, Putin’s intrusion has led to rising inflation and interest rates.» — this means that last year we spent twice as much on servicing our debt as the year before.

“To secure our public finances, we must stick to our plan, which aims to halve inflation, cut spending public sector and achieve debt reduction.

«Our tax burden remains lower than any major European economy, and by raising the personal threshold over the last decade, we have left three million people out of tax altogether.»