RISHI Sunak today defended his income tax freeze as "progressive" after he revealed millions would be dragged into higher bands in future.
In yesterday's Budget he announced he would raise the income tax thresholds in April, but then it would be frozen for the next five years after that.
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The Tories have repeatedly raised the income tax brackets over the past decade, bringing millions of lower paid people out of paying tax at all.
For basic rate taxpayers the threshold will be held at £12,570 and £50,270 for higher rate tax payers.
Experts have predicted that lower paid Brits could lose £576 over 5 years – if they don't get a pay rise, and without including National Insurance.
The freeze is expected to bring in around £6billion a year for the Treasury as it looks to cover the cost of coronavirus support.
Although Mr Sunak stopped short of increasing taxes, a freeze to these thresholds is essentially a pay cut, once you take into account the rate of inflation.
Mr Sunak said yesterday: "Nobody’s take home pay will be less than it is now, as a result of this policy."
And today he defended it again as "progressive" and the fairest way to help claw back some of the billions spend during the pandemic.
Mr Sunak told Sky News this morning: "Freezing personal tax thresholds is a progressive way to raise money. I think crucially what people need to understand is that no one's take-home pay that they have today is affected or lowered by this policy.
"What it does do is remove the incremental benefit that they might have experienced in future as inflation fed through to their wages.
"Also crucially, those on higher incomes are affected more by this policy – it is a very progressive policy and that is something that has been noted by independent think tanks that are respected, like the Institute for Fiscal Studies and others who have made the point that the richest 20 per cent of households, for example, will end up contributing I think 15 times more than those on the lowest incomes.
"That is why this is a fair way to help solve the problems that we need to."
Basic rate tax payers pay 20 per cent on earnings over the lower threshold, while higher rate payers are charged 40 per cent above the top threshold.
The Government had previously set out plans for the thresholds to increase in line with inflation.
This would have taken the personal allowance to £13,310 and the higher rate tax threshold to £53,410 by the end of the current parliament in 2024.
The thresholds for income tax generally rise each year so that people can earn more without paying more tax.
He also announced in the Budget yesterday:
- Corporation tax will rise to 25% in April 2023, from 19% in a sting for businesses
- The pension lifetime allowance will be frozen at £1,073,100 until April 2026, instead of rising in line with inflation as planned
- Inheritance tax and capital gains tax will be frozen until April 2026
- Fuel duty will be frozen in a huge win for The Sun's Keep It Down campaign
- The VAT cut will be extended for another six months – and then it will go up to 12% for another six months after that
What is the personal allowance?
THE personal allowance is an amount you can earn each year tax-free.
In the current tax year running from 6 April 2020 to 5 April 2021, that amount is £12,500.
You then pay between 20%-45% income tax depending on how much you earn.
- Low earners: If you earn £12,500 or less, you pay no income tax
- Basic rate: If you earn £12,501 to £50,000, you pay 20% tax
- Higher rate: If you earn £50,001 to £150,000, you pay 40% tax
- Additional rate: If you earn £150,000 or more, you pay 45% tax
Just keep in mind your personal allowance might be different if you're entitled to certain allowances or earn a lot of money.
The marriage allowance is a tax break where one partner in a married couple can transfer some of their unused personal allowance to another.
And people with sight issues can get the blind person's allowance which increases this tax-free amount.
And anyone who earns over £125,000 doesn't get any tax-free personal allowance – they will pay income tax on everything they earn.
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