A hidden £1,000 tax burden will penalize the middle classes, experts say, as families feel the pain’

Experts have warned in a bleak budget assessment that middle-class earners will be hit by a £1,000 hidden tax raid next year.

The Institute for Fiscal Studies (IFS) said all households face “continuing pain” amid a “lost decade for living standards” as they are hit by rising prices and lower wage growth.

Dire official projections indicate that the next two years will be the “worst on record” for household incomes despite hopes for economic growth in the medium term.

Public spending plans are set to be tighter than previously thought with more money going towards defense and childcare, and Jeremy Hunt expects to find more money to pay public sector salaries.

Paul Johnson, director of the think tank, said yesterday: “What households will feel over the next year will be constant pain. Inflation may come down, but prices are still much higher than they were two years ago. Earnings have not caught up.

Public spending plans are set to be tighter than previously thought with more money going towards defense and child care and Jeremy Hunt expects to find more money to pay public sector salaries

The hidden tax raid will raise £120 billion for the Exchequer over the next five years by absorbing up to six million extra people into higher classes, in a process known as a cash draw.

The IFS calculated that if the minimum salary at which workers start paying the 40p income tax rate – currently £50,270 – had risen in line with inflation since 2010, it would now be £56,680, and the next month it would be 62, £410.

Johnson warned: “A freeze on income tax, National Insurance contributions, bonuses and floor limits would cost most base taxpayers £500 next year and most higher rate payers £1,000”.

He also cited figures from the Office for Budget Responsibility (OBR) that predicted a significant decline in people’s purchasing power.

The independent forecaster said household income will fall 6 percent this year and next — just below the 7 percent feared last year, but still the biggest drop since records began in the 1950s.

Johnson said: “The Balance Sheet Office may be relatively optimistic about the medium term, but it still believes these two years will be the worst on record for household income.

Its projections indicate that real disposable income for households will be no higher in 2027 than it was in 2019 and barely higher than it was in 2017 — a lost decade for living standards. The BAO’s optimism about the economy may not have been widely shared for a short while yet.

Shadow chancellor Rachel Reeves also criticized the growth in stealth taxes yesterday. She told MPs: “To be fair, the government should give us some growth. Stealth tax growth, growth in mortgage costs, growth in NHS waiting lists. But there is no plan for the future, just a legacy of pain for the Tories.”

The hidden tax raid will raise £120 billion for the Exchequer over the next five years by accommodating up to six million more people in higher classes.

In another grim analysis of a ‘disastrous decade for living standards’, the Resolution Foundation said the average household disposable income would be £1,800 higher by 2027-28 if it remained at pre-pandemic growth rates.

It added that each household would pay an extra £4,200 in tax in five years compared to the 2019-20 figure, despite most Whitehall departments facing 10 per cent cuts to their budgets.

Chief Executive Torsten Bell said: “In retrospect, the UK’s underlying challenges remain largely unchanged.

We invest very little and grow very slowly. The living standards of our citizens are stagnant. We require them to pay higher taxes while cutting off public services. No single budget can change that, but it is time for Britain to change that.

Asked about the hidden tax raid, the prime minister’s official spokesperson said: “Some of this conversation makes it clear that the government is trying to strike a balance. We have a comment that says we are risk averse, and the comment says we take a lot of risk.”

We support families with the cost of living and invest in industries and infrastructure to grow the economy, so we must strike the right balance of reducing debt and restoring public finances, especially given the hundreds of billions of pounds saved during Covid. “