Given the two ‘mini budgets’ were less than two months apart, they were so different in their policies that it verges on the incredible that they both came from the same political party.
It is almost laughable that those earning more than £150,000 were told on 23rd September that the rate of tax on that income would be cut from 45% to 40%, only to be told on 17th November that not only would the tax rate not be cut, but they will now pay 45% tax on more of their income as a result of lowering the £150,000 threshold to £125,140. In addition, a further 250,000 more people will now be paying the top rate of tax.
I am sure that not too many people feel too sorry for those impacted by that change of direction, but it does seem to be a contemptuous way to treat any group of taxpayers.
Presumably part of the reason that that group were considered an easy target was that it is a relatively small proportion of the population and therefore won’t be able to make too much noise. There are about 600,000 people in that group – but using that group as an example actually serves to highlight the main tax raising element of Jeremy Hunt’s Autumn Statement.
The £150,000 threshold was introduced in 2010 and has not changed since. At the time it was introduced it impacted about 200,000. For most of the years since 2010 inflation has been at very low levels, and yet the number of people paying that rate of tax has tripled.
We are now in a period of high inflation – it is likely that the number of people caught by the 45% tax rate will increase considerably in the coming years – but that will be true of all thresholds.
Jeremy Hunt announced an extension to the freeze in all such tax bands until April 2028. That means that many more people will be dragged into:
- An effective tax rate of 60% triggered when income exceeds £100,000 and is less than £125,140.
- Higher rate (40%) tax at £50,270 (an estimated 2.6m more people).
- Basic rate (20%) tax at £12,570 (an estimated 3.2m more people).
Those are very significant numbers in terms of raising additional tax
The changes to the Capital Gains Tax annual exemption and the dividend allowance were even more harsh, with the former being reduced from £12,300 to £6,000 next year and £3,000 the following year, and the latter from £2,000 to £1,000 next year and £500 the year after.
I do find those reductions a little odd in that, part of the reason for their existence was to reduce the burden on HMRC of having to deal with hundreds of thousands of tax returns for small amounts of tax that would require disproportionate amounts of HMRC resource (since many of the people caught would not have tax advisors). It may be that more than 500,000 more people will need to file returns in the next few years as a result of these measures – and that does not bode well for HMRC who are already struggling to cope with their current workload. It is to be hoped that HMRC are given the resources to cope with that additional burden, though I am not optimistic on that front.
Jeremy Hunt has stated that the increase in the tax take is necessary to help fill the ‘black hole’ in the nation’s finances. It is self evident that raising tax by retaining tax thresholds at current levels and allowing ‘fiscal drag’ to increase the tax take year on year will mean that the years when the tax take is highest will be the later years. In this case those later years (2024 to 2028) will be in the next parliament which will give the next government (and it is looking unlikely that will be a Conservative government) something of a headache when trying to formulate its own tax policies.
When the coalition government came to power in 2010 the outgoing Labour chief secretary to the Treasury left a note saying “there’s no money left”. The Conservatives may be in the process of doing something similar.
