Sunak’s stealth tax raid sees burden on British households soar by 40pc

Rishi Sunak’s stealth tax raid has seen payments to the Exchequer surge by 40pc since the pandemic, Organisation for Economic Cooperation and Development (OECD) analysis shows.

Payments of taxes on earnings and wealth – such as income tax and capital gains tax – were up by 39.2pc in the first quarter of this year compared with the final months of 2019, the OECD found.

The tax burden on households has shot up more quickly in the UK than in other big rich economies, analysts said, despite all facing similar blows from Covid-19.

By contrast, Americans are paying just over 30pc more than they did before Covid.

British households paid £84bn in income and wealth taxes to the Exchequer in the first quarter of 2023 compared with £60.6bn in the final three months of 2019, according to the group’s seasonally adjusted data.

Much of the increase reflects freezes to key income tax and capital gains thresholds. Then-chancellor Sunak announced a freeze until 2025-26 in March 2021. His successor at the Treasury, Jeremy Hunt, has since extended it for another two years.

Thresholds have been maintained despite the high rate of inflation, which is pushing more workers into higher tax brackets when they get pay rises.

The frozen thresholds have been dubbed a stealth tax raid by critics who point out that wages are still failing to keep pace with bills and prices.

Tom Waters, of the Institute for Fiscal Studies, said: “Nominal incomes are rising quite quickly, so with frozen thresholds more people are brought into tax and higher rates of tax, and larger fractions of people’s incomes are subject to higher rates.

“Another possible factor is that there’s some evidence of rising earnings inequality in the UK, with fast growth for highly paid sectors. High earners have higher marginal tax rates, so rising earnings inequality tends to boost tax receipts.”

The OECD’s report came as US data showed inflation there rose for the first time in more than a year. Annual price increases in July rose to 3.2pc, accelerating from 3pc in June.

Higher inflation was driven in large part by rising housing costs, including rents. However, the increase was smaller than economists had expected.

US inflation is also less than half the 7.9pc recorded in the UK in June.

Among the countries highlighted by the OECD, German households have seen the smallest increase in their tax payments since the pandemic, at 7pc.

Canadians’ tax bills have risen by one-quarter and the French have seen payments rise by one-tenth.

In Britain, frozen thresholds have contributed to the tax burden hitting its highest level as a share of GDP since 1948, according to the Office for Budget Responsibility.

John O’Connell, chief executive of the Taxpayers’ Alliance, blamed Whitehall spending.

He said: “Families across the country are feeling the impact of out of control government spending.

“Huge public sector waste and a civil service employment boom are driving high taxes on hard-pressed Brits. Politicians need to rein in spending and give taxpayers some well-earned respite.”

A Treasury spokesman said the public finances need shoring up after the costs of the pandemic.

The spokesman said: “Following hundreds of billions of pounds in borrowing to fund pandemic and energy bills support, our tax system is helping to restore the public finances in the fairest way possible, with those earning the most bearing the most burden.

“We have the most generous starting personal tax allowance thresholds in the G7 and we are committed to ensuring work pays whilst we stick to our plan to halve inflation.”

Elsewhere, the latest weekly US jobs figures show almost a quarter of a million people made new claims for unemployment benefits. The rise surprised analysts and suggests the labour market may be cooling more rapidly than previously realised.