UK fears Sunak will hike taxes and cut welfare
THE Conservative Party is rallying around new Prime Minister Rishi Sunak, but taxpayers who remember his stint running the nation’s finances as Chancellor will be wary.
In his Budget in March 2021, Sunak unleashed a string of tax hikes to fund his costly Covid bailouts such as furlough.
His decision, announced with former PM Boris Johnson, to add 1.25 per cent on to National Insurance was reversed in Kwasi Kwarteng’s mini-budget.
Yet other Sunak tax hikes remain in force, including the notorious five-year freeze on personal allowances to 2026, which is forcing millions to pay more income tax.
The burden will increase as incomes rise but tax thresholds do not, and there have even been rumours that the freeze could be extended to 2028 if the Tories are still in power then.
Sunak also froze thresholds for inheritance tax, capital gains tax and the pensions lifetime allowance for five years.
He is unlikely to reverse his own tax raid now he is PM, with the country’s finances in an even worse state, said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown: “The tax freeze could even be extended, by which time the additional cost to taxpayers could total £5billion a year.”
Chancellor Jeremy Hunt has reversed around £32billion worth of Kwarteng’s unfunded tax and spending commitments, but estimates suggest he needs to find another £40billion.
Cutting spending will not be easy, with Vladimir Putin making defence spending almost untouchable and the NHS in perpetual crisis. Sunak is going to need an incredibly tight hold on the purse strings and continue to follow Hunt’s mantra of tough decisions and spending cuts, Coles said.
Anyone receiving state benefits such as Pension Credit or Universal Credit will be hoping the Government will increase them in line with September’s inflation rate of 10.1 per cent, but they could get the lower earnings-linked rise of 5.5 per cent. “If benefits don’t keep pace with inflation in April, this will make life even more impossible for many,” Coles said.
Hunt has also truncated Liz Truss’s Energy Price Guarantee, which originally capped bills at £2,500 for two years but now ends in April. When Chancellor, Sunak offered one-off lump sum payments to cover energy bills. This policy may be revived, but on a means-tested basis, Coles said: “If average earners are left out in the cold, it could be devastating.”
Perhaps the biggest question is what happens to the state pension triple lock. Pensioners will be desperate for Sunak to hike pensions in line with inflation from April, but he may only give them the lower earnings uplift, warned Andrew Tully, technical director at Canada Life: “Sunak has cut the triple lock once before. It won’t be popular, but this move could save him £5billion a year.”
Millions face an anxious wait until Sunak and his Chancellor reveal their plans on October 31.