Prime Minister Rishi Sunak is being called to make “fairer” changes to income tax ahead of the General Election expected later this year.
Experts are reminding Mr Sunak that he “promised to reduce 20 per cent income tax” but some are suggesting the Government should end the income tax threshold freeze instead.
The measure, known as fiscal drag, occurs when thresholds are frozen while wages rise, resulting in more of peoples’ income becoming taxable.
Last week, Chancellor Jeremy Hunt confirmed the date of Spring Budget 2024 to be March 6 which could be the last opportunity for Mr Sunak’s Government to set the fiscal agenda before an election.
Mr Sunak is being urged to raise tax thresholds to save families money
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Sian Steele, the head of tax at wealth management firm Evelyn Partners, cited the Prime Minister’s previous promise to cut income tax while offering an alternative as well.
She explained: “The fairer income tax cutting move would be to break the threshold freeze and raise the personal income tax allowance or the threshold for the higher rate band – even if the freeze was then reintroduced for subsequent years as planned until 2027/28.
“The personal tax allowance was £12,500 in April 2019: if it had been raised in line with the consumer prices index it would have been set at around £15,150 last April and if we assume inflation of six per cent for this financial year would be about £16,000 by next April.
“Likewise, the higher rate tax threshold which was £50,000 in April 2019 – and is drawing huge numbers of people into paying 40 per cent tax – would have been raised to about £60,600 by this April and by next April would be well over £64,000.”
Outside of income tax, reports suggest that the Government could prioritise slashing inheritance tax (IHT) in the Spring Budget.
This is the tax on someone’s estate, which includes money, possessions and property, after they have passed away.
The levy’s rate is rumoured to be cut but Ms Steele highlighted how fiscal drag is also dragging families over the tax’s threshold and forcing them to pay IHT.
According to Ms Steele, inheritance tax could be halved from 40 per cent but many households would prefer the nil-rate band be increased.
Families are being dragged into paying tax due to the threshold freezes
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Since April 2009, the IHT allowance has been frozen at £325,000 but would be £489,700 if it had risen with inflation.
Ms Steele added: “The out-turn and forecasts for the public finances between now and March will be watched hawk-like by policymakers and media alike for signs that the Chancellor might have scope for a pre-election ‘giveaway’.
“But also much will depend on the course of inflation: if the headline rate continues to fall as fast as recent data has indicated, then Mr Hunt will have more leeway to cut taxes, as he has emphasised the need to avoid re-igniting inflation with a fiscal injection.”
GB News has contacted the Treasury asking for comment.
