ONE MILLION workers could be set for a pay cut under Rachel Reeves’ budget “painful” budget plan.
The Chancellor could extend the freeze on income tax thresholds in this month’s Autumn Statement.
In a bid to fill a £40billion black hole in the public purse, Rachel Reeves may be considering pushing the freeze beyond its current expiry date of 2028.
The move could raise £7billion , according to reports by the Financial Times.
Labour’s manifesto promised not to increase rates of income tax, but included no mention of tax thresholds.
Other measures reported to be under consideration include:
- Increasing employers’ national insurance contributions
- Raising fuel duty for the first time since 2010
- Changes to rules on inheritance tax and stamp duty
- A levy on e-cigarettes.
The Treasury has so far declined to comment on Budget speculation.
The Institute for Fiscal Studies (IFS) think tank said that extending the freeze would pull 400,000 more people into paying income tax, according to The Times.
Plus, another 600,000 could be dragged into paying higher and additional rates by 2029-30 as wages rise.
This means a total of one million workers could be dragged into paying higher rates.
Freezing thresholds is a form of stealth tax – and helps governments generate higher tax revenue in a way that isn’t as obvious as a threshold change.
A person earning £50,000 a year now, who gets annual pay increases of 2%, will be earning about £55,000 by 2029-30.
This will have pulled them into the higher-rate tax band, making their income tax bill nearly £1,000 higher than if they paid the basic rate on their income, the newspaper said.
When asked about possible tax changes during a press conference in Berlin, Sir Keir Starmer said: “We are going to keep our manifesto pledges.”
He added: “I’m not going to pre-empt the individual measures that will be outlined by the Chancellor in due course.”
He went on: “This is going to be a Budget that will fix the foundations and rebuild our country.”
Predictions for the Autumn Statement
The Sun’s Head of Consumer Tara Evans reveals the top predictions for the Autumn Statement:
Winter Fuel Payments
Chancellor Rachel Reeves has already announced that Winter Fuel Payments will be limited to those receiving pension credit and certain benefits. The benefit is worth up to £300 per year and currently is available to everyone over state pension age and those on certain benefits.
No rises to some taxes
Keir Starmer promised there would be no rises to National Insurance, Income Tax, Corporation Tax or VAT as part of Labour’s manifesto in the election race.
Inheritance Tax
It has been predicted that the Chancellor Racheal Reeves will make changes to inheritance tax rates or thresholds. One suggestion is the potential shortening of the gift period before death for tax exemptions.
Pensions
Pensions featured very high up in the King’s Speech, was this a hint at how high on the agenda it will feature in the budget? Experts say there are a number of options, including reintroducing the lifetime allowance cap. Ms Reeves has previously campaigned to reduce the tax relief that higher earners get on their pensions and to introduce a flat rate of 33% instead. Another possible option is changing the rules around pensions and inheritance tax.
Capital Gains Tax (CGT)
There is speculation that the £3,000 tax-free allowance could be scrapped or there may be an extension of CGT to other assets.
Business Rates
There are rumours of reforms to support small businesses, possibly basing rates on land value.
Fuel Duty
Possible rise in fuel duty, reversing the freeze since 2011 and impacting household costs. The Sun has backed drivers as part of its Keep It Down campaign since the start of 2011.
How do I calculate tax?
If you earn £12,570 or less, you currently pay no income tax.
On earnings between £12,570 and up to £50,270, you pay the basic income tax rate of 20%.
Wages of £50,271 and above are taxed at the higher rate of 40%.
And the additional rate of income tax, which applies to earnings above £150,000, is 45%.
The thresholds for income tax generally rise each year so that people can earn more without paying more tax.
However, the thresholds are now frozen until 2028, but this could be extended in the Budget.
What else could be revealed in the Budget?
The Autumn Statement will take place at around midday on Wednesday, October 30.
Multiple changes to inheritance tax are being considered by ministers.
It is not certain how many people will end up paying more money, nor how much more they might pay.
The levy does not affect the vast majority of the public at the moment, with only 4% of deaths resulting in an inheritance tax charge as the threshold for the 40% charge is an estate above £325,000.
The Chancellor is also expected to honour the previous Tory government’s plans to make around £3 billion of cuts to welfare by reforming work capability rules in the Budget.
Ms Reeves is also said to be considering bringing a stamp duty discount introduced by the Tories to an end, the Times reports, which is expected to raise £1.8 billion a year by 2029.
Other reports suggest a tax on vapes could be raised, and that fuel duty could be hiked for the first time in 14 years.
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