Chancellor Jeremy Hunt plans to cheat the country’s top earners by lowering the 45p tax threshold, with the top rate now set at £125,000
- Those making more than £125,000 will be subject to the 45p tax rate in new plans
- The tax-raising measure is one of many that will fill £50m in black hole finances
- This is because Mr Hunt expected to announce £35bn in cuts on Thursday
Chancellor Jeremy Hunt has abandoned plans to reinstate Labour’s top 50p tax rate, but will still hammer higher earners into Thursday’s budget by cutting the income level at which the 45p rate comes into effect from £150,000 to £125,000.
It will be part of a series of tax-raising measures to fill an estimated £50 billion black hole in public finances.
Chancellor Jeremy Hunt is on the hunt for tax as 45p tax rate goes into effect from earners making £125,000
These include raising the windfall tax on oil and gas giants from 25 to 35 percent, reducing the tax-free allowance for stock dividends and removing the requirement for stocks to hold a referendum on tax increases above 2.99. per cent.
Lowering the top tax rate threshold and freezing income tax thresholds for another two years until 2027/2028 will bring in billions of extra pounds while technically sticking to the 2019 Tories manifesto to reduce income tax, national insurance or VAT not to increase .
Moving the 45p rate to incomes of £125,000 and above will bring in just £1.3bn a year, but will allow Prime Minister Rishi Sunak to ‘detoxify’ the government in the wake of Liz Truss’ disastrous attempt to cutting the top rate to 40p – one of the measures in Kwasi Kwarteng’s mini-budget that scared the markets and handed over political ammunition to Labour.
But many Tory MPs fear Mr Sunak is “overcorrecting” and jeopardizing the Conservatives’ reputation as a low-tax party.
Prime Minister Rishi Sunak and Jeremy Hunt are finalizing budget plans amid rising inflation
Sunak and Hunt met on Friday to finalize plans for the budget, which comes after the Office for National Statistics said the UK economy shrank 0.2 percent in the third quarter of 2022.
Their stealth taxes will amount to £68 billion, according to think tank the Center for Economic and Business Research. If the freeze on income tax brackets is extended by two years, it will bring in £52.5 billion by 2028.
It means three million more low- and middle-income earners will be dragged into higher tax brackets as their wages rise — because wages are rising faster due to double-digit inflation.
Earlier this year, when he was chancellor, Mr Sunak froze the amount people start paying taxes on at £12,570 and set the threshold for the 40 per cent higher rate at £50,271, where they will now remain until 2026.
Freezing inheritance tax thresholds in 2027/28 would result in a stealth tax grab of £11.8 billion over the next five years. Keeping the lifetime benefit on retirement savings at £1,073,100 for the next five years would add another £3.2 billion.
Lowering the 45p threshold will push nearly 250,000 people to pay the highest rate of income tax, costing them £580 a year, while a further 629,000 people already paying the 45p tax will pay £1,250 more a year.
Economists view the move as largely symbolic, as top earners find ways to avoid it or move abroad.
Raising the windfall tax to 35 percent and extending it to 2028 is expected to bring in £45 billion over the next five years.
Mr Hunt is also expected to cut up to £35bn.
Ahead of a G20 meeting of world leaders in Indonesia on Tuesday, Mr Sunak said the most powerful economies must unite to tackle global economic turmoil.
He said: ‘Putin’s war has caused devastation around the world, destroyed lives and shaken the international economy.
“This G20 summit will not be business as usual. We will invoke the Putin regime and expose its utter disregard for the kind of international cooperation and respect for sovereignty that forums like the G20 represent.”