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<\/p>\nMillions of middle earners will be left more than \u00a3500 a year worse off by the end of the decade because of Rachel Reeves\u2019s budget, an analysis has shown.<\/p>\n
People claiming out-of-work benefits will see their payments rise by \u00a3290 over the same period, and pensioners will gain up to \u00a3537 a year.<\/p>\n
The chancellor\u2019s decision to freeze income tax thresholds for a further three years means that some of the worst hit will be those earning about \u00a350,000, who face being dragged into a new tax band.<\/p>\n
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Rachel Reeves<\/p>\n
GETTY IMAGES<\/p>\n
Once adjusted for forecast inflation and wage growth, the post-tax pay of these workers will drop from \u00a339,520 to \u00a339,014 over the next five years, according to analysis by the Centre for Policy Studies (CPS), a think tank.<\/p>\n
About seven million people in the UK earn more than \u00a350,000, including more than a million in London.<\/p>\n
In April 2022, the Conservatives froze income tax thresholds until April 2026, and this was then extended until 2028. Reeves announced another three-year extension at the budget in November.<\/p>\n
The higher-rate threshold, past which point 40 per cent tax is applied, has been stuck at \u00a350,270 since 2022. It would be more than \u00a362,000 today if it had been linked to inflation.<\/p>\n
The Office for Budget Responsibility estimates that 4.2 million more people will be paying income tax by 2030 as a result of the freeze, and 3.5 million people will be dragged into higher or additional-rate tax bands.<\/p>\n
The average salaries of nurses, electricians and primary school teachers are on course to be subject to higher-rate tax by 2031. Secondary school teachers, police officers and a worker earning the average salary in London will be pulled into the higher rate as soon as next year.<\/p>\n
However, the \u201ctriple lock\u201d on the state pension<\/a> will mean that millions of pensioners will be \u00a3306 per year better off by the end of the same period.<\/p>\n The state pension is set to pass the tax-free personal allowance threshold next year, meaning that income tax would be charged on the payments for the first time. However, Reeves signalled in an interview after the budget that those whose sole income was the state pension would be exempted.<\/p>\n The CPS analysis shows that those who are protected in this \u201cquadruple lock\u201d will be \u00a3537 a year better off by 2031.<\/p>\n \u2022 What will happen in 2026? Take our quiz to make your predictions<\/a><\/p>\n