The invisible Budget tax grab Rachel Reeves hopes you won’t notice

Hikes to income tax or national insurance are toxic – just 22 per cent of voters say they’d support either.

Whether or not Rachel Reeves presses on with these headline-grabbing measures in her Budget, she has already found a way to quietly saddle working people with a significant stealth tax grab.

You might not even have noticed that the Chancellor is presiding over a major tax rise – one that’s hidden behind jargon and political patter – which costs households hundreds of pounds a year. That’s the idea.

Reeves has decided to maintain an existing freeze on tax thresholds introduced by her predecessor. Despite promises to “protect working people” by ending the freeze after 2028, the Chancellor is now expected to extend it for another two years.

Stealth taxes were first introduced by Tory Chancellor Jeremy Hunt, creating a phenomenon known as ‘fiscal drag’. It’s the fact that this is obscure and confusing that makes it such an effective tax grab.

Analysis by my company Nous.co shows stealth taxes will cost a typical UK household £267 next year alone. A household with two higher earners on salaries of £60,000 will pay £802 more in tax.

Zoom out to look at the impact of almost a decade of stealth taxes, and the results are jaw-dropping. If Reeves extends the policy until 2030, a typical household will be £2,610 a year worse off than if the thresholds had never been frozen.

The usual approach for Governments is to increase the income thresholds at which people pay different levels of income tax and national insurance. As average pay increases over time, so does the level at which people are considered to be medium and high earners.

For example, someone earning £30,000 a year currently enjoys a £12,570 ‘personal allowance’ which doesn’t attract any income tax, then pays 20 per cent tax on the remaining £17,250.

If the personal allowance threshold had risen in line with inflation every year since 2021, it would be £15,484, and only £14,516 would be taxed at 20 per cent.

If this sounds like technical tinkering, that’s precisely why stealth taxes are so effective. They hide behind tedious arithmetic, so they’re hard to spot.

After four years of rising bills, energy shocks and stubbornly high food prices, households hardly need another hit to their pay packets. Yet that’s exactly what stealth taxes deliver, and the Chancellor is hoping no one is paying attention.

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Greg Marsh is the founder and CEO of money-saving tool Nous.co, and a household finance expert.

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