Income Tax and National Insurance Contributions
(asked on 28th January 2025) - View Source
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, if she will make an estimate of the total amount of (a) income tax and (b) employee national insurance paid by a full time minimum wage worker in (i) 2024-25 and (ii) 2025-26.
The information requested on the impact on taxpayer numbers as a result of threshold freezes is published as part of the Office for Budget Responsibility’s (OBR) Economic and Fiscal Outlook (EFO). The published table sets out the estimated numbers of taxpayers with and without indexation of the thresholds and the impact of the thresholds being frozen. This information is updated in the EFO in each fiscal event. An excerpt from Table 3.18 from the October 2024 EFO:
3.18 Effect of threshold freezes on additional taxpayers | |||
| Million |
|
|
|
| Forecast |
|
| 2023-24 | 2024-25 | 2025-26 |
Number of taxpayers |
|
|
|
With indexation | 34.1 | 34.3 | 35.1 |
Without indexation | 36.2 | 37.6 | 38.6 |
…brought into income tax | 2.2 | 3.3 | 3.5 |
Number of higher-rate taxpayers |
|
|
|
With indexation | 4.7 | 4.4 | 4.5 |
Without indexation | 6.1 | 6.6 | 7.0 |
…brought into higher-rate band | 1.4 | 2.2 | 2.5 |
Number of additional-rate taxpayers |
|
|
|
Previous £150,000 threshold | 0.7 | 0.7 | 0.8 |
Aligned to the end of PA taper | 0.9 | 1.1 | 1.2 |
…brought into additional-rate band | 0.3 | 0.4 | 0.4 |
…brought into higher and additional rates | 1.6 | 2.6 | 2.9 |
As shown in the table, 3.5 million more individuals are expected to pay income tax in 2025-26 as a result of the threshold freezes.
The number of Higher rate taxpayers is expected to increase from 6.6 million in 2024-25 to 7.0 million in 2025-26 (a rise of 0.4 million), and additional rate taxpayer numbers are expected to increase from 1.1 million to 1.2 million (a rise of 0.1 million).
The full table is available as Table 3.18 in the detailed forecast of receipts: October 2024 Economic and fiscal outlook – detailed forecast tables: receipts (obr.uk)
The latest ONS estimate for median earnings for 2023-24 is £31,602, and this can be projected using OBR’s average earnings growth forecasts, which gives an estimate of median earnings for 2024-25 of £33,035 and 2025-26 of £34,011. An individual with solely income from these earnings would expect to have total Income Tax and Employee National Insurance liabilities of £5,730 in 2024-25 and £6,003 in 2025-26.
Individuals aged 21 and over earning minimum wage and working 35 hours per week would be expected to earn £20,821 and £22,222 in tax years 2024-25 and 2025-26 respectively. These would result in Income Tax and Employee National Insurance liabilities of:
£1,650 and £660 in 2024-25,
£1,930 and £772 in 2025-26.
Further information on the ONS data for median earnings can be found in their annual publication: 2024 provisional earnings and hours worked, all employees (ons.gov.uk)
Earnings growth forecasts are published in the OBR’s forecast tables: October 2024 Detailed forecast tables: Economy (obr.uk)