Income tax freeze set to bring in an additional £13bn

The freeze in income tax thresholds and rising inflation means the Treasury will collect £13 billion more than previously predicted, according to the Institute for Fiscal Studies (IFS).

The Treasury could raise as much as £21bn, which is £13bn more than the £8bn that Chancellor Rishi Sunak predicted in March 2021.

Income tax thresholds usually rise with inflation and were frozen when inflation was 1.6%.

At the time of the Spring Budget 2021, the Office for Budget Responsibility estimated the plan would bring in as many as 1.3 million people paying into income tax and 1m paying at the higher rate.

With inflation now expected to peak at 8%, however, even more people are expected to begin paying tax or pay the higher rate of tax.

Tom Waters, a senior research economist at IFS, said:

"This episode highlights the danger with setting tax thresholds in nominal terms for long periods of time - unexpected changes in inflation can make the size of a planned tax rise much bigger or smaller than expected."

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