Basic rate taxpayers will be £500 worse off next year and most higher rate taxpayers £1,000 due to the freezing of income tax and national insurance thresholds, warned the Institute for Fiscal Studies (IFS).

It has also said that money will ‘have to be found from somewhere’ to fund public sector pay increases in line with private sector growth, following the continued wave of strikes.

Paul Johnson, director of the IFS, said: ‘What households are going to feel over the next year will be continuing pain. Inflation may be coming down, but prices remain much higher than two years ago. Earnings haven’t caught up.

‘The freezing of income tax and NICs allowances and thresholds will cost most basic rate taxpayers £500 next year and most higher rate payers £1,000. The OBR may be relatively optimistic about the medium term, but it still thinks these will be the worst two years on record for household incomes.’

R