A freeze on income tax thresholds until 2027/28 could see average earners hand an extra £2,600 to the taxman, new analysis by AJ Bell shows.
The stealth tax rise is tipped to be delivered at Thursday's Autumn Statement, with chancellor Jeremy Hunt this week priming everyone to expect a significant increase in tax bills.
AJ Bell's analysis shows an average earner with a salary of £33,000 in 2021/22 before the income tax threshold freeze began will end up paying £27,378 in income tax if the policy is extended to 2027/28. They would pay just £24,821 if income tax thresholds were linked to inflation over the same period, a difference of 10%.
But the biggest squeeze will come for middle earners on salaries currently just below the higher rate income tax threshold, who will suffer the most as they're dragged into paying income tax at 40%.
The analysis shows someone earning £50,000 will end up paying 14% more tax over the six-year freeze from 2022/23 to 27/28, an increase of more than £6,500 compared to a system in which income tax thresholds matched inflation.
The income tax threshold freeze is just one of a raft of measures likely to be announced in an effort to boost tax revenues. The Chancellor could also look to raise more tax revenue from: inheritance tax freeze, increasing dividend tax, capital gains tax, scrapping higher-rate pensions tax relief, cutting the annual allowance, reducing or freezing the lifetime allowance, increasing pensions taxation on death, state pension triple-lock, and an Energy company windfall tax.
AJ Bell head of personal finance Laura Suter said: "In a swift about-turn, a nation that was getting tax breaks across the board just weeks ago is now braced for an onslaught of tax rises in this week's statement. The new chancellor has the unenviable task of filling the Government's financial black hole, tackling the current cost of living pressures and not deepening the UK's recession, all while keeping markets on side.
"In a bid to avoid spooking markets again, the Chancellor Jeremy Hunt's approach seems to be to leak everything so that no-one is surprised when he gets up at the dispatch box. From extending the freeze on tax allowances to a rumoured reduction in the threshold for the highest rate of income tax, the rabbits are already out of the hat.
"However, there appears to be more help for the poorest through the current cost of living crisis, with benefits and the state pension expected to be uprated by inflation, a rise in the national minimum wage tipped and additional cost of living support anticipated.
"The big reveal will be the details of the new energy support scheme for households, with Truss' generous offering for all households now ending in April next year. We're expecting a significantly pared back scheme, targeted at pensioners and those on benefits, but the detail is one thing that hasn't been tipped ahead of time."
