Income tax cut

Rishi Sunak is preparing to cut income tax by 2p in the pound or to slash VAT rates before the next election, The Times has learnt.

Of the 31 million taxpayers, 26 million pay only the introductory rate levied at between £12,500 and £50,000. The tax cut would be worth up to £750 a year, with those in the higher bands benefiting most. The chancellor set aside £14.7 billion to fund tax cuts if the pandemic is brought under control. We need to do something sooner, to demonstrate our low-tax credentials.” This week; he told the cabinet the NHS must show “tangible” signs of improvement after record levels of funding. “There’s no point in waiting until 2024 — it will be too late,” he said. But things are tight, and to deliver on our promise to cut taxes, we need to be disciplined on spending.”

The chancellor has told officials to draw up detailed plans to reduce the tax burden, with a third option to cut inheritance tax also under consideration

Under the proposals: the 45p higher rate of income tax could be scrapped

basic ratepayers would be up to £750 better off each year

VAT on green energy could be reduced

Sunak’s preference is said to be an income tax cut over the next three years as part of a “retail” offer before 2024 when the next general election is expected.

Paul Johnson, head of the Institute for Fiscal Studies, said that cutting income tax after increasing national insurance to fund health and social care would be “indefensible”, adding: “To introduce the health and social care levy, which essentially only affects workers, then to cut income tax, which also benefits people who receive their income from rent, occupational pensions and other holdings, discriminates in favour of the wealthy.”

Sunak told Treasury officials to review the tax burden after stating that it was his “mission” to cut taxes in his budget.

The tax burden is forecast to rise to the highest level since the Labour government in the early 1950s after increases in corporation tax and national insurance.

Sunak is determined to shed his reputation as a “high-tax, high-spend” chancellor after the pandemic.

One cabinet minister said the Tories needed a “retail policy” on tax. Ten options were drawn up, and more detailed work is being carried out on three of the — income tax, VAT and inheritance tax.

The Conservatives are also considering scrapping the 45p higher income tax rate in their election manifesto.

The Treasury is working on plans to increase the threshold for inheritance tax, which is £325,000, unless it involves property left to children when it is higher.

Summarised www.sba.tax

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