Are Potential UK Tax Cuts by 2024 likely?
Surprisingly, news has emerged in recent weeks about discussions the UK Chancellor, Rishi Sunak, has held with Treasury advisers to reduce taxes. We say ‘surprisingly’ because the discussions come just a few months after the Chancellor has committed to increase National Insurance and the tax on dividends. In this article, we look at the most recent suggestions and what they might mean for UK taxpayers. We also examine whether post-Covid pressures might make it difficult for Mr. Sunak to carry out his ideas.
Key elements of the Chancellor’s ideas for tax cuts
Press reports that the UK Chancellor, Rishi Sunak, has been discussing with his officials his ideas to:
- cut the basic rate of income tax by 1p in two successive years, 2023 and 2024, representing a total cut of 10%.
- lower the top rate of income tax from 45% to 40%.
- ease the burden of inheritance tax by raising the threshold at which it is paid.
- lower the headline VAT rate from its current level of 20%, perhaps as an alternative to cutting income tax.
What would the impact be on UK taxpayers?
Cutting 1% from the basic rate of income tax would cost the government around £6 billion. If the Chancellor were to carry out his wish to make this cut over two successive years, then the government would be worse off by some £12 billion.
On the positive side, following a 2% cut, 31 million taxpayers would find themselves better off to the tune of £750 a year.
Higher rate taxpayers would also benefit from a proposed cut in the higher rate of income tax from 45% to 40%.
A potential boost for Inheritance Tax and Green Energy
Mr. Sunak and his officials are not stopping at thinking about reducing income tax. They are also looking at ideas to increase the threshold at which Inheritance Tax becomes payable – a threshold which currently lies at £375,000. There are also plans to encourage the switch to green energy by offering lower rates of tax to households using green energy.
What’s the reason for these tax-cutting proposals?
By tradition, conservative governments have fostered a reputation for encouraging low-spend, low-tax economies. However, even with the massive costs of the pandemic, Boris Johnson’s term as Prime Minister has so far been characterised by a high-spend approach.
Could it be that the Chancellor is eyeing up the possibility of succeeding Mr. Johnson? In this case, he may be wishing to establish a reputation for traditional conservative fiscal values of cutting taxes.
Are the tax-cutting plans realistic?
The proposals will certainly prove popular amongst many taxpayers as well a with Rishi Sunak’s fellow MPs. With an election expected within the next two years, they will be glad to hear the potential good news for their constituents.
In ‘normal times’, Rishi Sunak’s ideas might seem achievable, but these are far from ‘normal times’. The pandemic has imposed untold pressures on economies around the world. The UK is no exception and is facing a period of record levels of national debt, along with low growth and high inflation. Another question is how these plans would fit in with the scheduled increases in National Insurance and Dividend Tax See our note “Increases in National Insurance and Dividend Tax, 18/9/21).
Only time will tell whether the speculation will crystalise into actual policy.
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Are Potential UK Tax Cuts by 2024 likely? Surprisingly, […]