Jeremy Hunt poised for stealth tax raid to reap £68bn: Households face pain as Chancellor tries to plug hole in nation’s finances
- Hunt under pressure to reassure markets he can balance Government’s books
- He has warned that ‘eye-wateringly difficult’ decisions will be required
- Choices will be difficult as Bank forecasting longest recession on record
Under pressure: Chancellor Jeremy Hunt
The Chancellor is set to unleash £68billion of stealth taxes this week in a desperate effort to plug a massive hole in the nation’s finances.
Jeremy Hunt – appointed to the role just a month ago – is under pressure to reassure markets that he can balance the Government’s books after a disastrous fiscal statement by his predecessor.
Kwasi Kwarteng and former Prime Minister Liz Truss both resigned after their package of unfunded tax cuts spooked investors and sent the interest on Government debt sky-rocketing.
Hunt has warned that ‘eye-wateringly difficult’ decisions will be required to restore Britain’s economic credibility. The choices will be especially difficult as the Bank of England is forecasting the longest recession on record.
Whitehall sources said the planned freeze on various tax thresholds will do a lot of the ‘heavy lifting’. But the raft of measures will undoubtedly spell pain for households.
By far the biggest money-spinner for the Treasury will be extending a planned freeze on income tax bands for an extra two years. This will net a total £52.5billion by 2028, according to think-tank the Centre for Economic and Business Research (CEBR).
The move will mean three million more low paid and middle-income earners will be dragged into higher tax brackets as their wages increase. Pay is rising faster than usual, due to inflation that has spiralled into double digits.
Tax bands are meant to lift in line with prices to ensure that no one pays more tax simply because of inflation. But, earlier this year – when he was Chancellor – Prime Minister Rishi Sunak froze the amount at which people begin paying tax at £12,570.
He also pegged the threshold for the 40 per cent higher rate at £50,271. Before the expected two-year extension due to be announced by Hunt, the thresholds were set to remain the same until 2026.
The move was announced before prices started soaring and was initially estimated to cost taxpayers £8 billion. But, with inflation running at more than 10 per cent, the total has grown significantly.
Extending other stealth taxes will add to the total – albeit much smaller amounts. Freezing inheritance tax thresholds into 2027/28 would result in an £11.8billion stealth tax grab over the next five years, according to the CEBR.
Keeping the lifetime allowance on pension savings at £1,073,100 for the next five years would net another £3.2billion, the think-tank added.
Government officials caution that any significant fall in inflation could see the Treasury getting much less than expected from stealth taxes.
The uncertainty has forced Hunt’s hand. He is said to be planning other major tax hikes, including an extension of the windfall tax on oil and gas giants including BP and Shell.
The Mail on Sunday understands the levy could rise from 25 per cent to 35 per cent, and could also be extended for a further two years. Electricity generators may also be targeted. The measures could raise £45billion over five years. But that sum could plunge due to gas market volatility.
Whitehall sources said the £150,000 threshold for those paying the 45p top rate of income tax could be lowered.
Banks are in the firing line and the triple lock which safeguards pension rises is under review. However, the bulk of Hunt’s Budget package is set to be public spending cuts – in a drive described as Austerity 2.0.
The Mail on Sunday understands spending cuts could hit £35billion a year, while tax hikes may amount to up to £25billion.
Last night, experts said big public spending cuts would not go down well with investors. ‘Financial markets don’t really believe it’s politically viable,’ warned Jonathan Portes, economics professor at King’s College London.
‘There is a big medium to long-term gap between what the UK raises in taxes and what the UK public wants in terms of spending on public services. That needs addressing.’