YouTube video by Ndubuisi 'Andy' Egwim (uploaded Nov 2, 2024) explaining how frozen personal tax allowance and tax bands combined with inflation create an "invisible tax hike": as wages rise with inflation but tax thresholds stay fixed, taxpayers can be pushed into higher tax brackets without real increases in purchasing power, effectively paying more tax while not becoming richer.
Now, this is where things get a bit tricky. There's been no changes to the personal tax allowance or tax bands, and that's not necessarily good news. What does it really mean? Think of inflation like a conveyor belt that nudges your income higher over time, so your salary might increase to try to catch up with inflation. But this does not necessarily make you any wealthier, because inflation eats away at the extra earnings anyway, so you don't necessarily have higher purchasing power or feel any richer. Now, if the tax bands remain frozen while your income is inching up with inflation, you could be pushed into higher tax brackets even if your purchasing power stays the same. It's like an invisible tax hike. Essentially, you're paying more tax without getting significantly richer.
