Ex-chancellor’s cuts pledge still leaves highest tax burden for 70 years
The tax burden will remain at its highest level for 70 years if Rishi Sunak becomes prime minister despite his pledge to slash 4p off the basic rate of income tax, Britain’s top fiscal think tank has said.
Tax would still account for the largest proportion of national income since the early 1950s if the exchancellor pulls off his promised tax cut in the next Parliament, the Institute for Fiscal Studies (IFS) said.
“This is a very substantial tax cut,” said Stuart Adam, senior economist at the IFS. “But it is still considerably smaller than the net tax rise announced by Mr Sunak as chancellor, which was comfortably more than twice as large.”
The shortfall is chiefly because of next April’s rise in corporation tax from 19 per cent to 25 per cent on companies with profits over £50,000.
Mr Sunak pledged to introduce the income tax cut, which would be the biggest in three decades, as he tries to shore up support in the race to become the next Conservative leader.
The IFS said it would reduce the tax take by £19billion a year once fully implemented. However, the total impact of his previously announced raids, including National Insurance and corporation tax rises, is expected to raise £46billion.
Mr Sunak aims to reduce the main rate of income tax – which applies to earnings between £12,570 and £50,270 – from 20p to 16p by the end of the decade if he becomes prime minister. While chancellor he already pledged to decrease the rate to 19 per cent by 2024.
Sources on his campaign team have told The Daily Telegraph that Mr Sunak hopes to cut the rate by a further percentage point over each of the three years after that, taking it to 16 per cent by 2027.
The adjustment would mean someone earning £32,000 a year – the UK’S current average wage – takes home £777 more in 2027 than they do at current rates. This would increase to £945 if wages rise in line with forecasts by the Office for Budget Responsibility, Britain’s fiscal forecaster.
The benefits are muddied by Mr Sunak’s controversial decision to increase the rate of National Insurance contributions by 1.25p in the pound, which came into effect this year, to fund health and social care spending.
The Government’s new thresholds and upper limits for National Insurance contributions and income tax are aligned, meaning both now impact the same band of earnings.
Mr Sunak’s National Insurance raid has substantially reduced the overall net boost to take-home pay from his combined changes.
Once the National Insurance adjustment and income tax cuts are both priced in, someone earning £32,000 in 2026-27 can expect to pay just £84 less to the Exchequer than before Mr Sunak took charge of the Treasury, according to figures compiled for by the IFS.