Sunday, November 27, 2022

Jeremy Hunt considers cutting threshold on top rate of UK income tax

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Chancellor Jeremy Hunt is examining plans to lower the £150,000 threshold at which Britons start paying the top rate of income tax, as part of efforts to fill a gaping hole in the public finances, according to officials.

The chancellor is not expected to increase the top rate of income tax, currently set at 45p, because this would breach the Conservative party’s 2019 election manifesto promise not to “raise the rate of income tax”.

But allies of Hunt said the idea of lowering the threshold at which people pay the top rate was under active consideration ahead of his Autumn Statement on November 17. The Treasury declined to comment.

Lowering the threshold below £150,000 would likely anger some rightwing Conservative MPs who believe in lower taxes to encourage entrepreneurship and higher economic growth.

Hunt has spoken of “eye wateringly” difficult decisions on tax rises and public spending cuts to provide a £55bn fiscal consolidation that would fix the hole in the public finances.

But he is hoping to be able to increase the state pension and welfare benefits in line with inflation despite the financial pressures on the government.

Increasing revenue from the 45p top rate of income tax would highlight how Rishi Sunak is pursuing very different priorities to his predecessor Liz Truss.

Truss in September proposed abolishing the 45p rate, as part of £45bn of unfunded tax cuts outlined in her much criticised “mini” Budget.

But the financial market turmoil that followed her plans forced her to abandon most of the tax cuts, and hastened her demise as prime minister.

Hunt is also considering plans to allow local authorities to raise council tax by more than the current annual cap of 2.99 per cent imposed by central government, according to The Times newspaper.

The cap has intensified the financial pressures on councils at a time when inflation has hit a 40-year high of more than 10 per cent.

Officials confirmed the Treasury and Downing Street were discussing the plans but said no final decisions have been made.

The chancellor is considering several measures for his Autumn Statement that could raise billions of pounds for the Treasury.

He is looking at extending an existing freeze on income tax allowances and thresholds until 2027-28. This would ensure Britons pay more tax as their incomes rise amid high inflation.

Hunt is also considering plans to extend a freeze of the inheritance tax “nil-rate band” until 2027-28.

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