The Institute for Fiscal Studies said on Thursday UK households frozen in taxes and welfare thresholds would cost UK households twice as much as they earned from government cuts. interest rates.
Liz Truss backs her tax-cutting strategy at this week’s Conservative party conference, arguing it’s essential to get the economy into higher growth – even if she’s forced to forgo the most eye-catching measure. his tax, which is to abolish the highest income level 45p Tax. Parallel to the prime minister, Prime Minister Kwasi Kwarteng stressed that the Tories would “reduce taxes for you and your family”.
But the IFS analysis shows that even after KwartengThe fact that the predecessor reversed the predecessor’s increase in the national insurance contribution rate and accelerated the 1p cut in the basic income tax, people in every part of the income distribution were considered a loss. more than they get.
“Freeze is much more than headline policies. . . and they will pull millions more people into the tax system and impose higher taxes,” said Tom Waters, senior research economist at IFS.
“Giving with one hand and taking with the other in this way is opaque and stealthy – and as inflation fluctuates, the impact can vary greatly from what the government originally intended,” he added. .
The £12,570 tax-free personal allowance frozen for four years means the number of income taxpayers will increase by 1.4 million to 35.4 million – two-thirds of adults – by 2025-26 . Over the same period, a frozen higher rate threshold would increase 40p rate payers by 1.6 million to 7.7 million – the highest on record.
Meanwhile, the £150,000 threshold by which people start paying the top 45p rate has been frozen since it was introduced in 2010 – and by 2025-26 the figure it catches will triple times since its founding, from 240,000 to 760,000.
These freezes will reduce household incomes by an average of £1,250 by 2025-26, the IFS said. Many households will also be affected by the freeze in the threshold at which certain benefits are withdrawn. After factoring in these and other planned changes to the welfare system, households will lose an average of £1,450 a year in 2025-26 – bringing in £41 billion in spending this target.
That is more than double the £20bn cost overtaking Kwarteng’s high personal tax rate cuts – although the IFS stresses that, compared with previous plans, the cuts will causing great strain on public finances.
The combined impact of changes to key tax rates, policy adoption and freezes will affect the poorest households, IFS said. This means that Kwarteng’s tax plans remain highly regressive, even if the government doesn’t impose further conditional cuts to benefits next year.
Because some freezes are indefinite – especially benefit values - the impact increases over time, with the tenth highest income households seeing income decline by 1.3% by 2030. -31 and the poorest quintile saw their income drop by 4.7%.