Sunak may ditch manifesto pledge by raising top tax rate
‘Whitehall sources said that protecting spending without rises in the biggest taxes just doesn’t add up’
RISHI SUNAK is considering expanding the top rate of income tax next week after the Treasury warned that more money was needed to protect pensions and benefits.
The Daily Telegraph understands that raising the 45 per cent top rate or lowering the £150,000 annual income threshold at which it kicks in are options being discussed.
Such a move would be a dramatic reversal in position from September, when Liz Truss abolished the 45 per cent rate, before later reinstating it when the markets balked at her plans. The Telegraph can also reveal the Treasury is looking at increasing the National Insurance rate paid by employers by 1.25 percentage points, despite a similar move being reversed by Ms Truss.
Raising the rate of income tax or National Insurance would break an explicit promise made in the Tory 2019 election manifesto, a document Mr Sunak has stood by since entering Number 10.
But a new scramble for cash has been triggered after Downing Street talks at the weekend that made clear more money was needed to protect the pensions triple lock and ensure benefits rise in line with prices.
Government ministers have been urged to “think the unthinkable”, with a Whitehall source saying that an initial plan to protect spending without rises in the biggest taxes “just doesn’t add up”.
Jeremy Hunt, the Chancellor, and the Prime Minister have been attempting to fill a fiscal black hole of about £60billion with a combination of spending cuts and tax rises.
Mr Hunt is also understood to be considering axing Ms Truss’s plans for lowtax investment zones.
The areas were due to benefit from tax cuts and speedier planning rules, but the proposals had already faced being watered down because of environmental concerns.
Much of the extra tax was expected to have come from freezing thresholds in areas such as inheritance tax, income tax, National Insurance and capital gains tax. But with just over a week before the Autumn Statement on Nov 17, discussions have turned to larger individual tax rises.
One area of interest is pushing up the top rate of income tax. The so-called “additional” rate has been a Tory bugbear for years, given even at 45 per cent it is much higher than it was for most of the New Labour years.
But Ms Truss’s attempts to scrap it backfired. The Treasury is understood to be looking at either raising the rate or slashing the point at which people start paying the rate. Increasing the rate from 45 per cent to 50 per cent, the old
figure, would raise a few billion pounds a year, according to broad estimates from the Institute for Fiscal Studies [IFS] think tank. Slashing the threshold from £150,000 to £140,000 could raise close to half a billion pounds, according to the IFS estimates, with the savings multiplied if the threshold went lower still.
But the chance of such a move bringing in reliable revenue streams over the coming years is debatable.
Paul Johnson, the director of the IFS, told The Telegraph: “There are various issues. One, is it a good way of raising a lot of extra money? No, because increasing the top rate brings a huge amount of uncertainty about future revenues and on a central estimate it would raise very little.
“Is raising it a good way of reducing inequality? It might be, so you might want to do it for that reason.”
The impact on the richest could actually be a point of attraction for Mr Hunt and Mr Sunak, given officials have been told to make sure the most well-off are bearing the brunt of tax rises.