"Million more set to pay income tax by 2026"

[dutchman]

More than one million people are set to start paying income tax in the next five years, official forecasts say, due to a move announced in the Budget



Chancellor Rishi Sunak said that the threshold at which the tax starts being paid will be frozen until 2026 after a rise this April.

It means getting a pay rise could pull people into a higher rate of tax.

Commentators have called it an increase in an individual's tax burden "by stealth".

The chancellor said that he wanted to be honest with the British public about the way in which money would be raised to pay for support schemes during the coronavirus pandemic.

At present, people start paying 20% income tax when they earn £12,500 a year, known as the personal allowance. The starting point for paying the higher 40% rate is £50,001.

These thresholds will go up to £12,570 and £50,270 in April, but will then be frozen until April 2026.

The Office for Budget Responsibility, the government's official but independent forecaster, said this policy would bring 1.3 million more people into paying income tax and one million more into paying at the higher rate. This is known as fiscal drag.

It said that, when taking the rise in the cost of living into account, it would effectively bring the personal allowance in 2025-2026 to the level it was in 2014-2015.

The Budget documents show this hits middle to higher income earners the hardest.

The policy will bring an extra £8bn a year into the Treasury coffers, compared with what it would have received if it had raised the thresholds in line with inflation.

Becky O'Connor, head of pensions and savings at Interactive Investor, said: "Freezing allowances is a back-handed way of raising taxes, as wage inflation and asset price inflation increase the number of people pushed over the thresholds at which they have to pay more tax.

"Frozen allowances and thresholds have a habit of remaining fixed for many years, dragging more people into tax charges over time."

[dutchman]

That's assuming inflation remains at it's current level when all the indications are that it will rise bringing many more low earners into the income tax bracket.

[rebbonk]

He's made a lot of assumptions, Dutchman. Things that he has no control over could give him a massive headache.

[dutchman]

Sunak's £65bn budget tax increases are highest in 28 years



Rishi Sunak has announced the highest tax increases since Norman Lamont 28 years ago, with a £65bn raid on household incomes and company profits.

In a budget that reversed more than a decade of tax cuts by successive Tory governments and was even tougher than George Osborne’s post 2010-election austerity package, the chancellor announced tough action to reduce government borrowing.

Sunak said he needed to freeze allowances on incomes and pension pots from next year to balance the books, in a move that will mean millions paying more tax.

The increase in corporation tax from 19% to 25% in 2023 would mark the first attack on company profits since the Labour chancellor Denis Healey raised corporation tax in 1974 in the wake of the three-day week.

Sunak said the shift to higher corporate taxes was fair because it would only hit those companies that had done well through the pandemic.

[dutchman]

Sunak said the shift to higher corporate taxes was fair because it would only hit those companies that had done well through the pandemic.

What nonsense. The giant multi-national companies which have profited most from the pandemic don't pay any tax in the UK. It's the small and medium sized companies who between them employ the most people who will be hit hardest.

[dutchman]

IFS says Sunak's plans involve cuts which look too harsh to be 'deliverable'

The IFS suggested that Rishi Sunak’s long-term plans involved spending cuts that were so harsh as to be unrealistic. Paul Johnson, the IFS’s director, said the “spending plans in particular don’t look deliverable, at least not without considerable pain”. The budget involved cuts worth around £4bn a year in spending after next year, he said. He said that in theory this meant that departments with unprotected budgets, like justice and local government, faced real-terms cuts in 2022-23. But he said in practice he thought the government would have to spend more. He explained:

Are we really going to spend £16bn less on public services than we were planning pre-pandemic? Is the NHS really going to revert to its pre-Covid spending plans after April 2022?

In reality, there will be pressures from all sorts of directions. The NHS is perhaps the most obvious. Further top-ups seem near-inevitable. Catching up on lost learning in schools, dealing with the backlog in our courts system, supporting public transport providers, and fixing our system for social care funding would all require additional spending. The chancellor’s medium-term spending plans simply look implausibly low.

Johnson said that freezing the higher rate tax allowance could create almost one million more higher-rate tax payers by the middle of the decade.

By 2025 we could have over 5 million higher rate taxpayers compared with the 4.1 million we currently have and far higher than the 3 million there were in 2010.