Average earnings in 2026 are estimated to be no higher than their 2008 level according to forecasts by the Institute of Fiscal Studies.
The findings came as part of the think tank’s response to Rishi Sunak’s budget delivered on Wednesday. As part of his plans, the Chancellor froze the personal allowance on income tax implying a seven per cent real cut.
The IFS said the freeze is “the least progressive way of raising income tax” but even four years of freezes will “undo only a fraction of the increases we saw over the 2010s.”
It added that freezing the higher rate threshold could see up to 5m taxpayers in the higher tax bracket compared with the 4.1m currently.
“Freezing things for a long period makes a big difference. There are, for example, now twice as many people paying the additional 45% rate of income tax as there were when it was introduced in April 2010 because the £150,000 threshold has remained unchanged in nominal terms for over a decade,” IFS director Paul Johnson said.
It came as Sunak unveiled a six per cent hike in corporation tax to 25 per cent for companies earning over £250,000. The IFS warned the increase could see less investment in the UK in the medium term and depress economic activity.
“Make no mistake, this proposed increase in the main rate of corporation tax is a big reversal of decades of policy direction and a significant risk. For all the rhetoric about it leaving the headline rate here below that in other G7 countries, our effective tax rate will be relatively high,” Johnson added.
As a result of the budget, borrowing is now forecast to again be over 10 per cent of national income in the coming financial year.