Fiscal drag race still a money spinner for the government

interactive investor comments on HMRC tax receipts.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The latest bumper tax haul shows that the deep freeze to income tax thresholds has already started to bite. It is a sneaky way for the government to replenish the public kitty following big spending on Covid and cost-of-living support measures. But the heightened tax burden comes at a time when many can least afford it.

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“The freezing of tax thresholds and allowances in tandem with wage inflation have pushed a large number of workers into higher tax brackets. This means we will all be paying more and more tax each year, as tax thresholds remain the same until 2028, while our pay and everything else around us goes up with inflation. Fiscal drag hits us all – even if we don’t change tax band. That’s because as our pay rises with inflation, more and more of our pay packet is taxed and our overall tax burden increases. But wage growth trailing far behind inflation leaves less money in our pockets and makes it harder to save and invest to build wealth.

“IHT continues to be a money spinner for the Treasury, with £5.3 billion collected between April and December 2022 - £700 million higher than in the same period a year earlier. IHT is no longer a tax on the wealthy as runaway house prices have dragged an increasing number of estates into the IHT net. The freezing of the nil rate and residence nil rate bands until at least April 2028 mean more and more estates will likely be snared in the ever-growing tax net.”