© Reuters. FILE PHOTO: Britain’s Chancellor of the Exchequer Jeremy Hunt walks at Downing Street in London, Britain, November 17, 2022. REUTERS/Peter Nicholls
By Andrew MacAskill
LONDON (Reuters) -More Britons will pay the top rate of income tax under government plans announced on Thursday to freeze allowances and lower the level at which people start to pay the highest rate as part of measures to stabilise public finances.
Finance Minister Jeremy Hunt said that the newly-installed Conservative government of Prime Minister Rishi Sunak is “asking more from those who have more” as he also set out plans to freeze national insurance and inheritance tax thresholds.
Hunt said the government would freeze income tax allowances until 2028 and was lowering the threshold above which the 45% top rate of income tax is paid to 125,140 pounds ($148,053) from 150,000 pounds.
The result of the changes is that the income of many more Britons will fall into the new thresholds and end up paying more tax because of the effects of inflation.
“We will still have the most generous set of tax-free allowances of any G7 country,” Hunt told parliament in a speech aimed at restoring market confidence in the government’s finances after the 50-day premiership of Liz Truss.
Her government had said it would abolish the top rate of income tax, before reversing course amid financial turmoil triggered by her plans. She was forced to resign last month and was replaced by Sunak as prime minister.
The Conservatives pledged in their election manifesto 2019 not to raise income tax or national insurance rates.
Hunt said that although his announcement will lead to “substantial” tax rises, the government had not raised the headline rates of taxation.
Anthony Whatling of Evelyn Partners, a professional services firm, said a quarter of a million more people in Britain would pay the top rate tax as a result of the government’s change.
The Office for Budget Responsibility (OBR), Britain’s independent fiscal watchdog, said the decision to freeze income tax allowances would raise an extra 26 billion pounds for the government by the financial year 2027-2028.
The OBR said it estimated that there would be 3.2 million new taxpayers created by the now six-year freeze on the personal allowance.
It said the freezes takes the real value of the personal allowance in 2027-28 back to its 2013-14 level.
In addition to the income tax changes, the government also said it would cut the amount shareholders can earn in dividends before they begin paying tax from 2,000 pounds ($2,366) now to 1,000 pounds next year and 500 pounds from 2024.
The amount people can claim tax-free for capital gains will fall from 12,300 pounds currently to 6,000 pounds next year and 3,000 in 2024, Hunt said.
($1 = 0.8452 pounds)