There were no changes to income tax thresholds in Chancellor Jeremy Hunt’s Autumn Statement today (22 November).
Despite speculation, the thresholds in England, Wales and Northern Ireland will remain at 20% on earnings between £12,571 and £50,270 a year; 40% between £50,271 and £125,140; and 45% above £125,140.
Overall, the Government announced £10bn worth of tax cuts, including a 2% cut in national insurance.
But the lack of any movement on income tax or thresholds will be a disappointment to the wider Conservative party membership.
The thresholds at which different rates of income tax or national insurance contributions apply were frozen in 2021, which means they don’t rise in line with inflation.
The cumulative effect of the freeze at a time of high inflation is significant. According to the Institute of Fiscal Studies (IFS), it will net the Treasury an extra £50bn per year by 2028.
However, it will also create millions of extra taxpayers – a phenomenon known as “fiscal drag”.
Two thirds of these new taxpayers will be from the lowest-income half of households in Britain, and the freeze will also drag millions more into the higher rate of income tax.
The IFS estimates a worker earning £19,000 will be £637 worse off a year by 2027-28, while someone earning £60,000 will be £1,944 worse off.
Prior to the Autumn Statement, Prime Minister Rishi Sunak reaffirmed his commitment to reducing the tax burden, which is on track to hit 37.7% of GDP.
“I want to cut taxes, I believe in cutting taxes, what clearer expression could there be of my governing philosophy than the belief that people, not government, make the best decisions about their money.”
However, the Government has clearly decided that any changes to income tax would add to inflationary pressures. Any changes will now have to wait until the Spring Budget at the earliest.
