One million to be pulled into higher rate of tax

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An increase in national insurance of 1.25 percentage points will kick in in the same month, costing the average worker £255 a year.

Mr Johnson, the IFS director, said: “If you are someone on average earnings who is going to be hit by a tax rise as a result of the reduction of the personal allowance, and a tax rise because of national insurance, and an extra potential several hundreds pounds a year from fuel prices, then this could well be worse than the financial crisis.

“There’s going to be inflation of six or seven per cent and earnings not going up anywhere near that fast – so put those two things together and I find it hard to think of a March-April period which will have been quite so bad. This is a combination of a big tax rise and falling real earnings. It’s not pretty.”

Mr Bell said a bigger hit to household incomes than caused by the financial crisis was “definitely realistic”.

Businesses are increasingly concerned. Next said the tax increase may “affect discretionary spending”, and Lord Wolfson said: “By increasing wages, one industry steals from another. We have increased wages in the areas where we have shortages of supply, but all that does increase pressure on other industries.”

He said Next is putting up its own selling prices by an estimated six per cent.

Rising inflation also poses a threat to the Treasury’s coffers by pushing up the amount of money Britain must pay on servicing its national debt of more than £2 trillion.

Speaking to Bloomberg, Sir Howard, the Natwest chairman, said: “My biggest worry is whether the Government can stabilise the national finances. I think this is a delicate thing and that’s why the Treasury is, as we understand it, staying firm.”

A government spokesman said: “The UK has the highest basic personal tax allowance in the G20 – and maintaining the threshold is a progressive approach to fund our world leading public services and rebuild the public finances following Covid.

“Higher earners will continue to contribute more, and nobody’s take-home pay will be less than it is now in cash terms.”

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