Stealth tax to pay for NHS boost

Freeze in personal tax thresholds part of Treasury plan to fund spending promises

STEALTH taxes are expected to help pay for Theresa May’s £20billion increase in NHS spending, The Daily Telegraph has learnt.

The Prime Minister will today set out her plans for the health service cash injection after warning that people will be “contributing more”.

Some of the money will come from a “Brexit dividend” – cash that Britain will no longer send to Brussels after the UK leaves the EU in March next year.

But under plans being discussed in the Treasury, personal tax thresholds are expected to be frozen after 2020 to help pay for the spending increase. These are the salary levels at which people pay the basic and higher rates of tax. Freezing the thresholds means that more people’s incomes will move into the tax brackets as salaries increase through annual pay rises – a process known as “fiscal drag”.

However it will only raise around £1.8billion a year, which will mean the Government will have to find more cash from borrowing or savings. The news came as:

♦ Defence, schools and police budgets are set to miss out on big spending increases because of the investment in the NHS, Government sources said;

♦ Leading Eurosceptics welcomed the “Brexit dividend” – but warned it must not be used as leverage to water down their other Brexit demands;

♦ Two former health ministers said the NHS must be radically reformed and simplified if the £20billion boost is to make a difference to patients.

Unveiling the spending plans today, Mrs May will say that the NHS is “this Government’s No1 spending priority”. She will say that the money – which No10 said works out at £394million a week – will be provided specifically for the NHS and will be funded in a responsible way.

“This must be a plan that tackles waste, reduces bureaucracy and eliminates unacceptable variation, with all these efficiency savings reinvested back into patient care,” she will say.

A Treasury source said increasing the rate of income tax or national insurance contributions had been ruled out by Philip Hammond, the Chancellor.

The source said: “The vast majority of Conservative colleagues do not want to lose the card we have as a party, which is lower taxes.”

The threshold for basic rate at which workers start to pay 20 per cent income tax is £11,850 and the Tories have pledged to increase this to £12,500 by 2020. The 40 per cent rate threshold is set at £46,350 in the 2018-19 tax year, with a manifesto commitment to increase this to £50,000 by 2020.

The Institute for Fiscal Studies (IFS) said last night that freezing the thresholds after 2020 would raise around £1.8 billion a year. The rest of the funding could come from more borrowing and stronger than expected economic growth from a successful deal to leave the EU next year, sources said.

Paul Johnson, the IFS’S director, said it was wrong to suggest there would be a “Brexit dividend” because Britain still had to pay its exit bill, as well as com- mitments to farmers.

Kate Andrews, from the Institute of Economic Affairs, said: “Make no mistake – freezing thresholds to raise more money for the NHS is a stealth tax”.

She added: “When the short-term cash injection for the NHS wears off – and its failures are back in the headlines – people will rightly demand to know why their additional contributions were funnelled down the drain.”