Kwasi Kwarteng unveils radical income tax plan
Income tax was high on the agenda for Kwasi Kwarteng today, as he outlined the direction in which he plans to take the UK. Prime Minister Liz Truss based her leadership campaign in part on tax cuts, suggesting this move could boost the UK economy.
It appears her Chancellor stands firmly behind her on this plan, with his announcement on the matter today.
Mr Kwarteng today announced the Government would abolish the 45 percent rate of income tax.
He said: “Tax determines the incentives across our economy. The tax system needs to be much simpler. People should keep more of the money they earn.
“I’m not cutting the additional rate of tax – I’m abolishing it altogether. From April 2023, we will have one single rate of additional income tax.
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“However, income tax thresholds are currently frozen until 2026 and over time, wage increases mean people are paying tax on more of their income, and in some cases are being dragged into paying higher rate tax.
“This is a particular issue in the current climate as soaring inflation has accelerated wage increases.
“While this is a welcome boost to take-home pay, for many it will fail to compensate for frozen income tax thresholds. Unfreezing these would be a much more powerful lever to support lower and modest earning households.
“For anyone earning under £37,670, increasing the basic rate threshold by 10 percent around the current rate of inflation, would offer a greater income tax saving than cutting the rate of income tax from 20 percent to 19 percent.
“Aegon analysis shows that a 10 percent increase in the current threshold for paying basic rate income tax would save people earning above £13,827 around £250 over a year in income tax. This is based on the basic rate of income tax of 20 percent in England.
“Different income tax rates apply in Scotland, so individuals will have to wait to see if the Scottish Government makes equivalent changes.”
Jamie Morrison, head of tax at accountancy firm HW Fisher, added: “Wow! A huge decision from The Chancellor to cut the basic rate of income tax to 19 percent. This will impact everyone.
“Middle class forgotten? The abolition of the 45 percent rate leaves in place the 60 percent tax rate suffered by thousands in the £100-£125k bracket, another threshold that has remained unchanged for many years.
“Smart, political moves today and it is hard to see how the 45 percent shift benefits anyone apart from higher earners.”
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