An average UK earner on a £30,000 salary will lose a £174 boost that would have come next year if plans to cut the basic rate of income tax to 19% had gone ahead, according to analysis. However, they will still be around £218 better off due to the scrapping of the 1.25 percentage point increase in national insurance (NI), which has been kept in place, according to wealth managers Quilter.
The Government had been set to cut the basic rate of income tax to 19% from April 2023. But now, among a range of policies previously announced in the mini-budget which will no longer be taken forward, the basic rate of income tax will remain at 20% indefinitely, until economic circumstances allow for a cut.
Mr Hunt also announced that the energy price guarantee, which keeps gas and electricity bills in check, will end in April next year rather than being in place for two years - meaning your bills are likely to go up next spring.
Rachael Griffin, a tax and financial planning expert at Quilter. said: “The latest U-turn on a policy-that-never-was sees the reduction in income tax from 20% to 19% from April 2023 scrapped. Had the cut come into place in April 2023, an average UK earner on £30,000 a year would have paid £174 less in tax next year.
“However, they will still benefit from (Kwasi) Kwarteng’s abolition of the 1.25 percentage point increase to national insurance which (new Chancellor Jeremy) Hunt has kept in place, saving them around £218 next year. A higher earner on an annual salary of £100,000 will now pay £377 more in income next tax year, while benefiting by more than £1,000 from (Mr) Kwarteng’s previous national insurance hike reversal.”
Ms Griffin continued: “The amount of income tax paid by UK taxpayers has almost doubled in the last 20 years, from £324.7 billion in 2002/03 to £633.4 billion in the tax year 2019/20, with the number of additional-rate taxpayers rising the fastest. It is clear that (Mr) Hunt’s emphasis will be on balancing the books, so it is likely that tax allowances and thresholds are not going to become more generous any time soon.
“The income tax cut would actually have been net positive for Government coffers by 2025/26 due to frozen thresholds catching more people in the tax net. As such, it is now even more vital for individuals to utilise the tax allowances they have as much as they can and take advantage of the situation today.”
Chancellor Jeremy Hunt said: “The Government’s current plan is to cut the basic rate of income tax to 19% from April 2023. But at a time when markets are rightly demanding commitment to sustainable public finances, it is not right to borrow to fund this tax cut.
“So I have decided that the basic rate of income tax will remain at 20% and it will do so indefinitely, until economic circumstances allow for it to be cut.”
Jason Hollands , managing director at investment platform Bestinvest, said: “With real incomes being squeezed, much higher business taxes now coming next year and the burden of personal taxes set to rise as allowances are frozen too, the growth outlook for the UK remains very challenging in the near term, with a recession on the way.”
Laura Suter, head of personal finance at AJ Bell, said: “People have had yogurt in their fridge that’s lasted longer than some of the Government’s planned tax cuts.”
She said of the income tax U-turn: “It means that when April arrives people will no longer get that extra boost to their pay packets… it means someone earning £25,000 will pay an extra £124 a year while someone on £50,000 will pay £374 more in tax a year.”
Here are the savings that people would have made in different income brackets before the planned cut to basic rate tax was scrapped, followed by the savings they will make due to the cut to national insurance, which remains in place, according to calculations from Quilter:
– £20,000, £74.30, £92.88
– £30,000, £174.30, £217.88
– £40,000, £274.30, £342.88
– £50,000, £374.30, £467.88
– £60,000, £377.00, £592.88
– £70,000, £377.00, £717.88
– £80,000, £377.00, £842.88
– £90,000, £377.00, £967.88
– £100,000, £377.00, £1,092.88
