Rishi Sunak has been accused of giving tax cuts with one hand and taking with the other, as economists warn the impending national insurance cut will not ease the pressure on household finances.
The respected Institute for Fiscal Studies (IFS) said personal taxes are rising, despite the Prime Minister’s much-hyped tax cuts, while think tank the Resolution Foundation said the lowest paid will face the biggest hit.
It came as Labor accused Sunak of offering voters a “raw deal”, claiming the prime minister has given tax cuts worth £2 for every £10 taken. Shadow chancellor Rachel Reeves described the tax cut as a “cynical giveaway”.
Shadow Chancellor Rachel Reeves and Shadow Paymaster General Jonathan Ashworth (right) in Wellingborough, North Northamptonshire, on Friday.
(PENNSYLVANIA)
The Conservatives used last year’s autumn statement to reveal a two per cent cut to national insurance in a bid to boost the party’s fortunes, which Chancellor Jeremy Hunt said will save the average worker £450 a year.
It comes into force from Saturday, but changes to other taxes, including the controversial freeze on tax thresholds during Sunak’s time as chancellor, mean the tax burden facing households continues to rise.
The Resolution Foundation said anyone earning less than £26,000 will be worse off, and the tax cut will benefit those earning £50,000 a year the most, to the tune of almost £500.
The IFS said a worker earning an average salary of £35,000 would be £440 worse off in 2028.
And overall, the tax burden is still on track to be the highest since World War II.
Adam Corlett, senior economist at the Resolution Foundation, said: “Targeting workers through national insurance cuts is a smarter option than the options of cutting income tax or inheritance tax.
“But for many, particularly those earning less than £26,000, today’s tax cut will be offset by the tax rise that will effectively come in April, when personal tax thresholds are frozen again.”
Although further tax cuts are likely to be made this spring, the burden will continue to increase overall at the end of this parliament.
The IFS described the national insurance cut as “considerable” but said it comes against a backdrop of “a continuing, multi-annual freeze on personal tax thresholds”.
“If you put the two together, this is, overall, a tax increase,” said Deputy Director Helen Miller.
Miller also warned that Britain is “in the midst of a much bigger tax rise” as thresholds remain frozen until 2028.
“By then, an employee earning £35,000 will pay around £440 more a year,” he said.
The Labor Party has tried to assert itself, launching an advertising campaign to highlight “Rishi’s unfair treatment” on taxes.
The Labor Party has accused Rishi Sunak of offering taxpayers a ‘cynical gift’
(The Labor Party)
A mock poster by the party claims families will lose £1,200 under its tax plans, and suggests the Prime Minister thinks he “should be grateful” for paying £10 more in tax and getting £2 off.
He has plastered the ads on a shop window and an advertising van in Wellingborough, North Northamptonshire, where the Labor Party is seeking to topple the Conservative majority in the upcoming by-election.
The party paid to place the ad on the Tory-supporting Conservative Home website and parked its tanks on Sunak’s lawn.
Ms Reeves said: “Under Rishi Sunak’s unfair deal, for every extra £10 people pay in tax, they only get £2 back.
“Labor know that this month’s tax scam is just a cynical expose of a weak and out-of-touch Conservative government that is desperate to cling to power, rather than a credible plan to fix our broken economy.
“After 14 years in which workers were left worse off under the Conservative government, it is time for change.
“Rishi Sunak should call an election and give the public the chance to vote for a changed Labor Party that will change Britain for the better.”
The Liberal Democrats also pointed out the impact of frozen tax thresholds on the public and described 2024 as the “year of the tight middle”.
The party’s research suggests the combined impact of taxes, mortgage rises and food inflation could deliver a “hit” of more than £4,700 to the average household.
Following November’s autumn statement, the government has faced pressure from Conservative MPs to go further and cut income tax or inheritance tax.
There is speculation that further tax cuts could be announced in the spring budget on March 6, as Sunak prepares for the general election later this year. This could be Hunt’s last chance to introduce major tax and spending changes before voters go to the polls.
