Rachel Reeves stuns Brits with hidden tax rises – calculate how much it’ll cost you | Personal Finance | Finance

Rachel Reeves committed to scrapping the previous government’s income tax thresholds in her budget, but not before 2028.

Meanwhile, this means the thresholds remain frozen and the personal allowance is set at £12,570 per year, the same as it has been since 2021.

Thresholds traditionally increase in line with inflation, which is currently 1.7%.

This means that although people’s salaries rise every year, tax thresholds remain the same. As a result, people pay more and more taxes every year, creating a phenomenon known as “fiscal drag.”

For example, a person earning an average full-time salary of £37,430 per year would receive a take-home pay of £26,560 after existing income tax and national insurance have been deducted.

If Rachel Reeves increased the thresholds by the current rate of inflation, this person’s salary would be £27,712.

This means they pay an extra £60 a year due to financial hardship.

You can find out how much your financial burden will cost you by entering your annual salary here.

The Chancellor’s plans will see the tax burden hit an all-time high, with borrowing rising by an average of £32.3 billion a year and spending rising by around £70 billion annually over the next five years.

Ms Reeves said the measures were needed to address the “black hole” in public finances left by the Tories as they pump billions into schools and hospitals.

She confirmed plans to increase employers’ national insurance contributions and increase capital gains tax, as well as changes to inheritance tax and stamp duty.

And changing the way the government’s debt is measured allowed it to borrow more flexibly, leading to what the Office for Budget Responsibility called “one of the largest fiscal reliefs of any fiscal event in decades.”

The tax burden will reach 38.3% of gross domestic product in 2027-28, the highest level since 1948, when Britain recovered from the effects of the Second World War.