Tory backlash over tax raid on high earners
RISHI Sunak is facing a Tory backlash over his tax plans which might include breaking a manifesto pledge with a raid on top earners.
A “stealth” inheritance tax hike on families and higher council tax may be on the cards too as the PM and Jeremy Hunt scramble to balance the Government’s books.
Mr Sunak and the Chancellor are said to be “thinking the unthinkable” as they seek ways to fill a £60billion hole in public finances.
There is speculation next week’s Autumn Statement may include drastic measures such as lowering the threshold at which people pay the top rate of tax – or even raising it from 45p to 50p in the pound.
That would mark a return to the level imposed by Labour in 2010, smashing Tory manifesto vows – and a dramatic turnaround from six weeks ago when Kwasi Kwarteng announced it was being axed.
Final decisions have not yet been taken but Government sources suggested that the threshold change was more likely. Eyewatering spending cuts are expected to make up the bulk of the package, with a mooted £25billion of tax rises largely enacted in “stealth” raids by not raising thresholds in line with soaring inflation. That drags millions of people deeper into the tax system without technically increasing taxes. Personal allowances may also be targeted for the wealthy, as well as capital gains and share dividends. Former Tory leader Sir Iain Duncan Smith warned: “It would be completely ridiculous to raise taxes further now in order to fill a notional hole in the finances in a few years’ time.
Plan...Jeremy Hunt “All you would do is plunge us into a deeper recession and the deficit will increase even further. If we go down that route then our goose is cooked.” Ministers are believed to be looking at allowing local authorities to raise council tax in order to avoid deep cuts at a local level. That would see Mr Sunak break another manifesto promise in removing the need for councils to hold a referendum if they want to raise tax by more than 2.99 per cent.
Mr Hunt announced £32billion in tax rises within days of taking office as he sought to calm financial markets. He is now planning to raise a further £25billion in taxes, and
save up to £35 billion via cuts. Ministers had refused to rule out ditching the triple lock on state pensions, increasing them and benefits only in line with wages rather than inflation.
But both are now being treated as priorities for the PM and are expected to be uprated to match price rises.The £11billion a year cost means deeper cuts elsewhere.
The Treasury has already warned that “everybody” will have to pay more tax as a result of announcements next week.
Plans for a stealth inheritance tax raid on families have also angered backbenchers. The Chancellor is poised to freeze the threshold above which people must pay death duties for another two years.
Inheritance tax receipts have more than doubled from £2.3billion in 2009 to £6billion last year. House prices have rocketed by 120 per cent during that time, while the threshold for total assets that are passed on stayed at £325,000.
The latest freeze will raise an extra £1billion a year, analysis shows, and drag 10,000 more families into paying death duties.
Sir John Redwood, the ex-head of No 10 policy under Margaret Thatcher, said: “Higher tax rates are a bad idea.We need to fight recession, back enterprise and promote wider ownership. We need to attract capital, risk-taking and investment, not tax it away.”
Former Brexit secretary David Davis warned: “I’m generally against stealth taxes because they’re stealth taxes.
“There’s a moral argument for lower taxes. I can quite understand what Jeremy Hunt is trying to do, and I support lots of it, but I hope we don’t go too far the other way and exacerbate the recession.”
Promises
Individuals can leave £325,000 in assets tax-free; couples can pass on £650,000. As Chancellor, Mr Sunak agreed with then PM Boris Johnson to freeze thresholds to 2026.
John O’Connell, head of the TaxPayers’ Alliance, said: “Further Tory tax hikes would not just break manifesto pledges, they would hammer households at the worst possible time. The Chancellor should stick to manifesto promises and not try to balance the books on the backs of working people.”
RISHI Sunak and Chancellor Jeremy Hunt face a tricky balancing act as they prepare for next week’s Autumn Statement.
They need to cut the deficit, in order to prevent the Treasury racking up debts at an unsustainable rate.
At the same time, the Government must not overly punish the strivers, the hardworking people upon whom the economy ultimately depends.
There are only two ways to get the deficit down. One is to cut spending and the other is to increase taxes.
In practice, it seems clear that Mr Hunt will need to use a mixture of both of these methods when he sets out his plans next week.
It means that many of us will have to pay a little more.
But that should not mean forcing hardworking people with reasonable incomes into tax arrangements which were designed to snare the most wealthy.
It would also seem very strange if the Government re-introduced swingeing tax rates inherited from former Labour Prime Minister Gordon Brown, which previous Tory administrations rightly cut.
As senior Conservatives point out, the danger could be that punitive tax increases plunge the nation into a deeper recession, making the Treasury’s financial woes even worse in the long run.