Hunt to clobber top earners by cutting 45p tax threshold

Move may tempt SNP to follow cash grab

CHANCELLOR Jeremy Hunt has dropped plans to reinstate Labour’s 50p top tax rate – but will hammer higher earners south of the Border in Thursday’s Budget by cutting the income level at which the 45p rate kicks in from £150,000 to £125,000.

It will be part of a raft of tax-raising measures to fill an estimated £50billion hole in public finances.

They will include hiking the windfall tax on oil and gas giants from 25 to 35 per cent and cutting the tax-free allowance for share dividends.

Cutting the threshold for the top rate of tax, and freezing income tax thresholds until 2027-28, will raise billions of pounds extra for England, Wales and Northern Ireland.

Mr Hunt’s income tax changes will not apply in Scotland as the issue is devolved to Holyrood.

However, any measure which raises more revenue is likely to appeal to the SNP Government, which will decide whether or not to follow Westminster.

Scotland already has a higher top earner rate of income tax at 46 per cent for people making £150,000 a year.

Moving the 45p rate to incomes of £125,000 and above south of the Border will raise just £1.3billion a year but will allow PM Rishi Sunak to ‘detoxify’ the Government after Liz Truss’s disastrous attempt to cut the top rate to 40p – one of the measures in Kwasi Kwarteng’s mini-Budget which spooked the markets.

Any changes Mr Hunt makes on inheritance tax and the windfall on oil and gas firms will automatically apply north of the Border, as these levies are reserved to Westminster.

Yesterday Tory MPs sounded their concern that Mr Sunak is ‘over-correcting’ and jeopardising the Conservatives’ reputation as a low tax party.

Mr Sunak and Mr Hunt met on Friday to finalise plans for the Budget, which comes after the Office for National Statistics said the UK economy shrank by 0.2 per cent in the third quarter of 2022.

Their stealth taxes will add up to £68billion, according to think tank the Centre for Economic and Business Research.

Extending the freeze on income tax bands for an extra two years will net £52.5billion by 2028. It means three million more low-paid and middleincome earners will be dragged into higher tax brackets as their wages increase.

Earlier this year, when he was Chancellor, Mr Sunak froze the amount at which people begin paying tax at £12,570 and pegged the threshold for the 40 per cent higher rate at £50,271, where they will stay until 2026.

Freezing inheritance tax thresholds into 2027-28 would result in an £11.8billion tax grab over the next five years.

Keeping the lifetime allowance on pension savings at £1,073,100 for the next five years would net another £3.2 billion.

Reducing the 45p threshold will drag nearly 250,000 people into paying the highest rate of income tax south of the Border, costing them £580 a year, while a further 629,000 people already paying the 45p tax will fork out £1,250 more a year.

Economists regard the measure as largely symbolic, as top earners find ways to avoid it or move abroad. Raising windfall taxes to 35 per cent and extending them to 2028 could raise £45billion over five years.

Mr Hunt is also set to outline £35billion of spending cuts.

Ahead of a G20 meeting in Indonesia on Tuesday, Mr Sunak said the most powerful economies must tackle the global economic turmoil.

He said: ‘Putin’s war has caused devastation, destroying lives and plunging the international economy into turmoil.

‘The UK and our allies will work together to make meaningful progress towards solving the economic challenges we face.’

‘Work together for meaningful progress’