Jeremy Hunt will hit budget savers by freezing tax-free allowances for ISAs despite rising inflation
- Millions of savers will face budget pressure as ISA tax credits will be frozen
- Jeremy Hunt will reveal plans to raise £54 billion to balance the government’s books tomorrow
- Economist Gerard Lyons warned that the “austerity” package would not help the economy
- Mr Hunt said people wanted the UK to be “a country to pay for”.
Millions of savers face budgetary pressure today when Jeremy Hunt unveils plans to raise £54 billion to balance the government’s books.
Whitehall sources said tax-free allocations to international investment standards and other savings products would remain frozen, though their value has been eroded by rising inflation.
The annual ISA allowance of £20,000 has been frozen since 2017 and is set to remain so even after the next election. If it had risen in line with inflation, it would have already been £22,235.
Other tax-free savings rates would be frozen in another blow to investors, who also face the prospect of lower provisions and higher rates of both capital gains and dividend tax.
It comes despite growing warnings that the scale of the tax grab threatens to plunge the UK into a deeper recession that could further damage public finances.
Economist Gerard Lyons, who has advised both Boris Johnson and Liz Truss, warned yesterday that an “austerity” package of tax hikes and spending cuts “is not the policy mix the economy needs”.
Jeremy Hunt will reveal plans to raise £54 billion to balance the government’s books today
Rishi Sunak said a tough package was needed to tame inflation
Mr Lyons acknowledged that Miss Truss had “overdone it and scared the markets” with her infamous mini-budget in September.
But he insisted, writing on the Conservative Home website: ‘We should not flush the baby with the bathwater and believe that fiscal policy can never be used to help stabilize an economy in recession.
“The risk is that a short-term recession becomes much deeper, with long-term scars.”
Mr Lyons said the government risked being enslaved to the Office for Budget Responsibility, whose forecasts of the economic outlook will determine the size of tomorrow’s budget package.
Economist Gerard Lyons (pictured) warned yesterday that the “austerity” package of tax hikes and spending cuts was not “the policy mix the economy needs.”
Sir Edward Lee (pictured) urged the chancellor not to raise taxes to fund a “greater and greater country”
We have now created a situation where the Office for Budget Responsibility effectively determines the immediate stance of fiscal policy. Risk is a pro-cyclical policy.
“If the economic outlook is poor, the fiscal situation looks bad, so austerity or tax increases follow – but these, in turn, make the economy and finances worse.”
Some Tory MPs have also warned Mr Hunt against limiting the tax raid. Sir Edward Lee urged the Chancellor not to raise taxes to fund a “greater and greater state”, adding: “Will he remember the good electors of mid-England, people so seldom profited, who worked their whole lives for their mortgage and their pensions as they feared That more and more of them will be drawn into higher taxes?
“Their pension pot has been attacked so that the state can get bigger and bigger and spend more and more on those on benefits.”
Mr Hunt said people wanted the UK to be “a country that pays for itself, does not borrow at the expense of future generations and can be trusted when it comes to sound money”.
Speaking at the G20 summit in Bali, Rishi Sunak said a tough package is needed to tame inflation. The Prime Minister acknowledged that the UK’s international reputation for fiscal prudence had taken a slight blow, and said rising prices were “the number one challenge we face”.
“It is important that we control that,” he added.