Forget tax cuts and end the big freeze now

• Millions now at risk of having to pay tax on savings interest

Fiscal drag means that more than seven million people will be paying a higher rate of tax in 2028 than they were in 2022, according to the Office for Budget Responsibility.

The cost to households of the deep freeze on tax thresholds is not limited to income tax. The £325,000 allowance before you pay inheritance tax has not gone up since 2009 and is expected to stay frozen until at least 2028 despite years of high inflation and rising house prices.

If basic-rate income tax was cut to 19 per cent

If the chancellor raised income tax thresholds by 6.7 per cent, September’s consumer price index measure of inflation (the monthly figure that is usually used to increase allowances in a normal year), then from April workers across all income levels would be better off.

The personal allowance would become £13,412 and anyone earning above that but below the new higher-tax threshold of £53,638 would be £168 a year better off. Someone earning between £53,638 and £100,000 would save £842 a year in tax, according to analysis by AJ Bell.

• Tax is chipping away at our hard-earned cash

If the thresholds remained frozen and Hunt cut the basic rate of income tax from 20 per cent to 19 per cent, someone earning £25,000 would be £44 a year worse off than they would have been if thresholds had gone up, AJ Bell said, but someone with an income of £50,000 would be £206 a year better off.

All workers earning between £53,638 and £100,000 would pay £465 more tax a year if the basic rate were cut to 19 per cent than they would if the allowances went up by the rate of inflation.

The Times is calling for the government to end the stealth tax raid, increase the income tax thresholds and allow workers to keep more of their hard-earned money.

Laura Suter from AJ Bell said: “The combination of frozen allowances at a time of high inflation has been toxic for workers. Restoring annual increases to thresholds will ensure more people pay the tax rate appropriate to their income, considering recent wage inflation.”

If basic-rate tax was cut to 18 per cent

If the chancellor were to shave 2p in the pound off the basic rate of income tax — a move Hunt was rumoured to be considering — more people would make tax savings than they would from a removal of the threshold freeze, but not everyone.

Someone earning £25,000 would be £80 a year better off if the basic rate of tax were 18 per cent but thresholds remained frozen, than they would be if the basic-rate threshold were raised 6.7 per cent. Someone on £50,000 would be £580 a year better off.

But those earning more than the higher-rate threshold would still miss out, being £88 a year worse off than they would be if the thresholds were higher.

Tom Evennett from the accountancy firm EY said: “A headline-grabbing change in the budget would be an outright income tax cut, because this would encompass all forms of income, earned salary or self-employed income and also unearned income including rental profits and dividends.

“However, cutting taxes on this broad range would be expensive, and every 1p reduction in the basic rate of income tax would cost around £6.3 billion in the 2024-25 tax year, rising to nearly £7.5 billion in future years.”

Increasing the higher and basic income tax thresholds 6.7 per cent would cost the Treasury an estimated £8.9 billion in 2024/25 and £11.2 billion in 2025/26, according to EY. Evennett said: “While frozen thresholds have raised significant funds for the chancellor, as inflation has driven up pay, increasing them could provide a tangible boost to household finances.”

If inheritance tax was cut

You can pass on £325,000 free of inheritance tax, or £500,000 if you leave your main home to a direct descendant. Anything above this is typically taxed at a rate of 40 per cent. Anything you leave to a spouse or civil partner is tax-free and couples can inherit unused allowances from each other, so between them they can pass on £1 million tax-free.

If the chancellor increased both allowances by September’s 6.7 per cent inflation figure, a couple would be able to pass on £1,067,000 tax-free — avoiding a 40 per cent tax bill of £26,800.

• Income tax calculator

Smaller estates, which have become liable to inheritance tax as rising house prices have tipped them over the threshold, would benefit the most from a threshold increase. Arguably these households should never have been the target of inheritance tax, which was designed as a tax on the wealthy.

If the tax thresholds remained the same and the chancellor cut the rate of inheritance tax instead, those with the biggest estates would benefit the most. If the rate were cut 5 percentage points to 35 per cent, an estate worth £1.5 million would pay about £25,000 less tax than they would today.

Suter said: “Cutting IHT would delight a lot of backbench MPs. Despite the fact that few estates are actually liable for IHT, with less than 4 per cent paying any death duties whatsoever, it is still a deeply unpopular tax.”

End the stealth tax raid: our campaign demands

• To increase income tax thresholds in line with inflation.
• To raise the £1,000 annual savings allowance (£500 for higher-rate taxpayers) — the amount of interest you can earn tax-free.
• To soften the £100,000 cliff edge — the point at which some earners pay a marginal tax rate of 60 per cent, and also lose tax-free childcare.