Income tax and national insurance contribution rates have been frozen for 2021-22 and are likely to remain frozen until the end of this Parliament in 2024.
By freezing the personal allowances and tax bands at their 2021-22 levels the Chancellor is causing the value of those allowances and bands to diminish by inflation.
In real terms, if the taxpayer increases their income or profits in this period, more of their income will be taxed at the higher rates. As a result, the taxpayer pays more tax despite the tax rates being unchanged.
This ‘freezing’ approach has been applied to inheritance tax since 2009, while the value of property subject to that tax has increased enormously, resulting in more deceased estates becoming liable to pay inheritance tax.
The capital gains tax exempt amounts and rates have also been frozen in 2021-22 with the Chancellor confirming these will also be fixed for the foreseeable future.