HAMMOND’S INCOME TAX BOMBSHELL
Manifesto pledge may be axed to help find £20bn a year for NHS
A FLAGSHIP Tory pledge to cut income tax for millions of working people could be ditched to help pay for the NHS.
Chancellor Philip Hammond is poised to postpone or even scrap the manifesto promise to raise the starting threshold for both the basic and 40p rates of income tax in this month’s Budget.
A senior Tory source said the pledge was ‘up for grabs’ following Theresa May’s decision to announce a £20billion-a-year funding boost for the NHS. Freezing income tax thresholds could raise £2billion a year.
‘Everything is on the table now,’ the source said. ‘If you are looking for guidance on tax policy I would not look to the manifesto.
‘We will always be a party of low tax. But the Prime Minister’s priorities have changed. We have made a huge spending commitment here, which will be transformational for the NHS. But it has to be paid for and the Budget reflect that.’
Mr Hammond is also considering reviving a controversial VAT change for small business, which could raise a further £2billion.
But Treasury sources played down speculation that he will go ahead with a raid on the pensions of the better-off.
The proposal to ditch the income tax pledge was discussed by senior ministers yesterday but has not yet been signed off by the Prime Minister. A Whitehall source denied that No 10 was ‘at war’ with the Treasury over the issue. But Mrs the May source is under confirmed pressure that from her Chancellor to move on the issue after acknowledging that her NHS plan would require tax rises.
In 2015, the Conservatives pledged to raise the personal allowance for income tax to £ 12,500 by 2020, with the threshold for paying higher rate tax rising to £50,000 by the same date. Last year’s Tory manifesto re- committed the party to the pledge, saying: ‘The Conservatives will always be the party that keeps tax as low as possible and spends the proceeds responsibly. ‘It is our firm intention to reduce taxes on Britain’s businesses and working families. By 2020, we will, as promised, increase the personal allowance to £12,500 and the higher rate to £50,000.’ The freeze would deny tax cuts promised to millions of voters. The current personal tax allowance – the amount people can earn before they start paying income tax – stands at £11,850 a year. Failure to raise it to £12,500 would cost every basic rate taxpayer £130 a year. The 40p tax rate starts at incomes above £46,350. Failure to raise it to £50,000 would cost higher rate taxpayers £730 a year. Mrs May threw the Chancellor’s Budget calculations up in the air in June when she announced plans for a major NHS funding increase.
The ‘70th birthday present’ will be worth £20billion a year in additional funding by 2023. Treasury analysis suggests the pledge will cost £84billion over a five-year period.
Mr Hammond is also under pressure to release more cash for defence, social care and the police, while still grappling with the deficit left by the last Labour government. And Mrs May has declared the end of austerity, including an end to the public sector pay freeze. The PM said the NHS increase would be funded in part from a ‘Brexit dividend’. But she acknowledged that taxpayers would have to ‘contribute a bit more’ – a pledge Mr Hammond is now determined to keep her to.
Former Tory minister Robert Halfon last night warned against dropping the tax cut pledge, unless the money was going to be diverted to help other low income families, such as those on universal credit. Mr Halfon said: ‘It is absolutely vital that we are the cutting-the-cost-of-living party, particularly for those on lower incomes.
‘That should be our number one priority for government and it is hard to see how you would square that with abandoning this promise.’
Fellow Tory Neil O’Brien said he would be ‘surprised’ if Mr Hammond went ahead with the move and urged him to focus on measures that would not hit working families, such as trimming Britain’s £14billion foreign aid budget.
He added: ‘The Chancellor has a tricky balancing act. I’d love to see more investment in things like law and order and care for older people.’
Raising the personal allowwill
‘He has a tricky balancing act’
ance was the flagship policy of David Cameron’s coalition government.
The allowance rose from £6,475 in 2010 to £10,600 five years later, saving basic rate taxpayers £825 a year. But critics say the policy has not helped the poorest in society. And Mr Hammond has privately questioned the political value of going further.
Mr Hammond is also considering slashing the VAT threshold for small firms. Cutting the threshold from £85,000 to £43,000 would hit half a million firms and boost Treasury receipts by £1billion to £1.5billion a year. Mike Cherry, of the Federation of Small Businesses, warned Mr Hammond against a ‘blatant tax grab’.