Income tax allowance.

Rishi Sunak’s decision to freeze income tax allowances and thresholds is on track to raise £30bn a year by 2026 because of the impact of high inflation, says a leading think-tank. The calculation by the Institute for Fiscal Studies highlights the extent to which the prime minister secures revenues through «fiscal drag», the stealthy process of dragging more people into paying income tax and exposing others to higher tax rates. Chancellor Jeremy Hunt would raise about an additional £6bn a year by 2028 if, as expected, he extends the freeze on income tax allowances and thresholds in next week’s Autumn Statement, according to the government’s estimates. «Because different announcements and U-turns have taken place, people may not have noticed the biggest tax rises of all, which is income tax,» he said.

The Treasury said ministers had increased the personal allowance by more than 40 per cent in real terms since 2010, excluding many low earners from paying income tax altogether. In addition, according to officials, Hunt is examining plans to lower the £150,000 threshold at which people start paying the 45p top income tax rate.

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