The unspoken Budget secret: higher taxes to squeeze budgets even harder

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on the Chancellor’s Autumn Budget, showing the unspoken Budget secret: higher taxes to squeeze budgets even harder.

Sarah Coles says:

“No news isn’t always good news: higher taxes didn’t get a mention in the Budget speech, but unfortunately, you’re still likely to pay more tax next year.

“Part of this sleight of hand is about timing. The major tax hike had already been announced, with National Insurance and dividend tax both rising 1.25 percentage points in April 2022. The more you earn, the bigger an impact this will have, but NI will add £180 a year to the tax bill for a typical basic rate taxpayer earning £24,100.

“But a major part of it is the power of fiscal drag, because the damage was done when the Chancellor announced the freezing of tax allowances in the spring. The personal allowance will stick at £12,570 in April, and every year until 2025/26, while the higher rate threshold will be frozen at £50,270. More pay rises, including the rise in the minimum wage, will push more people over these thresholds, and leave them paying more tax.

“He also froze the capital gains tax annual exempt amount at £12,300, the pension lifetime allowance at £1,073,100, the inheritance tax nil rate band at £325,000 and the residential nil rate band at £175,000. Rises in the value of investments and properties will push more people over these thresholds too.

“And then there’s a vast array of thresholds he didn’t mention, but which remain rooted to the spot, including everything from the measly annual gifting allowance within the inheritance tax rules, to the high-income child benefit tax charge and the savings allowance.

“From a political perspective, it’s the ideal kind of tax rise. It will fill the coffers for the next five years without the government ever having to announce a tax hike. From a taxpayer’s perspective there’s nothing ideal about any kind of tax rise, especially at a time when our budgets are being squeezed from all sides.”

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay