Chancellor Rishi Sunak is trying to reposition himself as a tax-cutting Chancellor in an attempt to distance himself from Boris Johnson’s spending splurge.
Sunak directed his employees to develop detailed plans in order to reduce income tax, cut VAT rates and lower inheritance tax prior to the next General Election. A 1p cut in the basic rate of income tax would cost about £6 billion a year and would help 31 million people.
One proposal by Mr Sunak would see the income tax rate cut 1p per year in 2023-2024 to prepare for an election. The basic rate would fall from 20p to 18p in the pound, worth up to £750 a year to taxpayers.
The Times reports that the Tories might also scrap the 45p higher income tax rate in their next manifesto. Along with other targeted cuts, the VAT rate would drop to 20 percent.
Rishi Sunak instructed his staff to prepare detailed plans for cutting income tax and slashing VAT rates, as well as reducing inheritance tax, before the next General Election
One plan is being looked at, where households that use green energy would also be eligible for lower rates.
A Conservative MP said last night: ‘The party and the country will be very happy if these things are indeed happening, particularly if it’s part of a wider strategy that’s focused around low tax, high growth and innovation. Ultimately, as a Chancellor you are judged by actions.’
Mr Sunak is determined to lose his reputation as a ‘high-tax, high-spend’ Chancellor as the country attempts to move on from Covid.
In his Budget speech in October, Mr Sunak said it was his ‘mission’ to cut taxes – despite announcing a rise to National Insurance that will take the tax burden to its highest in 70 years.
He also said: ‘My goal is to reduce taxes. By the end of this Parliament, I want taxes to be going down not up.’
Shortly after the Budget was delivered, Sunak instructed Treasury officials to examine the tax burden to find ways of easing the financial burden for families.
One proposal by Mr Sunak would be to reduce the income tax base rate by 1p for 2023-2024, just before an Election.
According to The Times, the Tories may also consider scrapping the 45p increase in income tax rate.
A number of options were considered and more detail is currently being done on some, such as cutting inheritance tax, VAT or income tax. According to The Times, the Chancellor prefers income tax.
A Treasury source said that there were several issues, such as what to do with Omicron Covid and inflation. These could have an impact on the plans.
Paul Johnson, head of the Institute for Fiscal Studies think tank, said cutting income tax after increasing National Insurance to fund health and social care would be ‘indefensible’.
He said: ‘To introduce the health and social care levy, which essentially only affects workers, then to cut income tax, which also benefits people who receive their income from rent, occupational pensions and other holdings, discriminates in favour of the wealthy.’
John O’Connell, chief executive of the TaxPayers’ Alliance, said: ‘Brits are crying out for the Chancellor to cut their taxes. With the burden at a 73-year high, Rishi must do more than simply seek to offset the Tory tax rises we’ve seen over the last decade.’