The Treasury has so far not commented on Budget speculation. However, it is widely believed the Chancellor will extend the freeze on the thresholds at which people start to pay the basic, higher and additional rates of income tax.
At the moment, people do not pay tax on the first £12,570 of their earnings and only pay 40% on earnings over £52,271. Earnings over £125,140 are taxed at 45%.
But while freezing those levels is not technically a tax rise, more people will be dragged into higher tax bands as their salaries rise, meaning they would give more to the Exchequer.
The move would raise about £7billion for the Treasury. But a graph produced by the Institute of Fiscal Studies (IFS) think-tank showed that elderly people on the state pension would be paying the basic 20% rate by 2027-28.
The IFS said extending the freeze by two years would bring another 400,000 into paying tax and 600,000 into the higher and additional rates.
Tom Wernham, research economist at the IFS, said: “Whilst avoiding a headline-grabbing tax rate increase, freezing tax thresholds is a less transparent and more uncertain way for the Government to raise revenue.”
He pointed out that the money such a measure would raise can fluctuate widely because inflation can rise more or less than predicted.
And he argued the move would just be “postponing the pain to the taxpayer to after 2027-28”.
It is also highly anticipated that Ms Reeves will raise employers’ National Insurance in the Autumn Budget.
The Chancellor has been dubbed “Rachel Thieves” by the Tories for her expected tax hikes, while Labour MPs are scared that unpopular Budget announcements could cause them to lose the next General Election.
