The Office for Budget Responsibility has revealed in its latest fiscal risks and sustainability report that 3.5m consumers are going to be pulled into the higher-rate tax band of 40% by 2028-29. 

An analysis by Moneyfactscompare says the fiscal drag is prevalent, and these latest statistics should be a stark warning for consumers.

Moneyfacts’ finance expert Rachel Springall says: “Savers are going to be in dismay of the fiscal drag, as any basic-rate taxpayer who moves up to the higher-rate tax bracket at 40% will see their Personal Savings Allowance halved, from £1,000 worth of savings interest tax-free each year to just £500. 

“Savers need to take advantage of their ISA allowance and protect their hard-earned cash from tax. The debate on whether the yearly cash ISA allowance should be cut is ongoing, so savers will no doubt want to maximise their deposits in the meantime.”

The OBR report says: “The changes to personal tax thresholds are expected to bring 4.2 million additional taxpayers into income tax, and shift 3.5 million taxpayers into the higher-rate band, and 0.6 million into the additional-rate band, by 2028-29.”