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.
“This will simplify the tax system and benefit the whole country and the economy.
“I can announce we will cut the basic rate of income tax to 19 pence in April 2023.”
Experts previously called for the income tax threshold to be unfrozen as a “powerful lever” to help low and modest earners.
Steven Cameron, Pensions Director at Aegon, said: “To help recoup the costs of the COVID-19 pandemic support, the government announced a freeze in income tax thresholds in the Spring 2021 Budget.
“This freeze might have gone largely unnoticed during a period of low inflation, but as wage increases have accelerated, albeit still lagging behind soaring price inflation, the impact is now very significant.
“More individuals are paying income tax on a greater proportion of their salary and in some cases being dragged into paying higher rate tax.
“Receipts from income tax provide the biggest source of revenue for the Exchequer but soaring inflation is making it extremely hard to justify keeping the freeze until 2026.
“Doing so would mean taxing people more, exacerbating the cost-of-living crisis.”
Commenting on the Chancellor’s decision, Jamie Morrison, head of tax at accountancy firm HW Fisher said: “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.”