PM hints at cuts to personal tax

PM hints at cuts to personal tax

Nov 23, 2023

Rishi Sunak has given the strongest sign yet that the Chancellor is considering personal tax cuts in the Autumn Statement this week

The government is raking in record tax receipts as the country faces the highest tax burden in 70 years and inflation has halved to 4.6% from last year’s high of 11%.

This has given the government at least £10bn in headroom which it has already said will be focused on tax breaks for businesses, a push to encourage innovation and research, and campaign to get unemployed people back into work.

Speaking at the CBI conference, the PM Rishi Sunak said ‘his argument has never been that we shouldn’t cut taxes, it’s been that we can only cut taxes once we have controlled inflation and debt’.

Sunak tempered his comments with indications that tax cuts could come ‘over time’, perhaps indicating that announcements will be held until the Budget in March.

He said his government believed in ‘cutting taxes, but doing so carefully and sustainably’.

‘We will do this in a serious, responsible way, based on fiscal rules to deliver sound money, and alongside the independent forecasts of the Office for Budget Responsibility.

‘And we can’t do everything all at once. It will take discipline and we need to prioritise.

‘But over time, we can and will cut taxes.’

There is pressure on the Chancellor Jeremy Hunt to take action in Wednesday’s Autumn Statement as this would allow for any tax changes to be introduced in the new tax year from 6 April 2024.

Any cuts to income tax or threshold changes announced in the spring Budget would not come into effect until the following tax year.

Evelyn Partners’ head of tax Sian Steele said: ‘The Office for Budget Responsibility presented the Chancellor on Friday evening with finalised public finance forecasts, and the speculation is that the fiscal headroom might have expanded to as much as £25bn.

‘The prospect of cuts to taxes on income gatecrashed the Autumn Statement discourse at the weekend, as media reports of a possible move on income tax or national insurance were accompanied by Mr Hunt’s public pronouncement that ‘everything is on the table’ and a fresh emphasis on growth.

‘The most likely runner seems to be a cut to the basic rate of income tax as that accords with a statement made by the PM last year that he wants to lower the rate to 16% by the end of the next parliament. But it’s also thought a cut to national insurance might be favoured as being cheaper, and less inflationary, with a possible emphasis on the self-employed to back up the focus on business and growth.

‘Hunt could also give a boost to higher earners by raising the higher rate threshold – where earners begin paying 40% marginal rate tax – from £50,270, where it has stood since a negligible increase in April 2021 and is currently due to remain until 2028.

‘The fiscal drag effect of the higher rate threshold failing to keep pace with wage inflation has been very pronounced: at 5.6 million in 2023/24, the number of higher rate taxpayers has increased by 40.7% since 2020/21. The freeze until 2028 will draw at least 2.1m more earners into paying higher rate tax at 40%, and is earning billions for the Treasury.’