17 October 2022
If you are covering the reversal of the 1% cut to basic rate income tax, please find comments from Rachael Griffin, tax and financial planning expert at Quilter.
“The government is now scrambling to show some semblance of credibility on tax and spending, as they dig their way out of Kwasi Kwarteng’s calamitous ‘mini budget’. The latest u-turn on a policy-that-never-was sees the reduction in income tax from 20% to 19% from April 2023 scrapped. The idea that you can cut taxes in search of growth is quickly being swept aside for austerity mark II.
“The 1% cut to basic rate income tax was first announced by Rishi Sunak, then brought forward by Kwarteng and has now been put on ice by Hunt indefinitely. The move will save the government £5 billion next year.
“Had the cut come into place in April 2023, an average UK earner on £30,000 a year would have paid £174 less in tax next year. However, they will still benefit from Kwarteng’s abolition of the 1.25 percentage point increase to national insurance which Hunt has kept in place, saving them around £218 next year.
“A higher earner on an annual salary of £100,000 will now pay £377 more in income next tax year, while benefiting by more than £1,000 from Kwarteng’s previous national insurance hike reversal.
Table: What people would have saved prior to 1% income tax u-turn
|
Earnings |
1% Basic rate cut saving per annum (scrapped) |
1.25% NI saving per annum (remains) |
Total per annum pre IT u-turn |
|
£20,000 |
£74.30 |
£92.88 |
£167.18 |
|
£30,000 |
£174.30 |
£217.88 |
£392.18 |
|
£40,000 |
£274.30 |
£342.88 |
£617.18 |
|
£50,000 |
£374.30 |
£467.88 |
£842.18 |
|
£60,000 |
£377.00 |
£592.88 |
£969.88 |
|
£70,000 |
£377.00 |
£717.88 |
£1,094.88 |
|
£80,000 |
£377.00 |
£842.88 |
£1,219.88 |
|
£90,000 |
£377.00 |
£967.88 |
£1,344.88 |
|
£100,000 |
£377.00 |
£1,092.88 |
£1,469.88 |
“Hunt had little choice but to act to not only shore up market confidence, but to help balance the books as the government faces a black hole in its finances following the pandemic and its energy price guarantee.
"The amount of Income Tax paid by UK taxpayers has almost doubled in the last 20 years, from £324.7 billion in 2002-03 to £633.4 billion in the tax year 2019-20, with the number of additional-rate taxpayers rising the fastest.
“It is clear that Hunt’s emphasis will be on balancing the books, so it is likely that tax allowances and thresholds are not going to become more generous any time soon. The income tax cut would actually have been net positive for government coffers by 2025/26 due to frozen thresholds catching more people in the tax net. As such, it is now even more vital for individuals to utilise the tax allowances they have as much as they can and take advantage of the situation today.”
