Hunt has now named his date for the next Budget on March 6 and rumours are swirling that he may cut inheritance tax or even knock a penny or two off income tax. Either would be welcomed by hard-pressed taxpayers.
Prime Minister Rishi Sunak desperately needs to offer voters some good news ahead of this year’s general election, which he is currently expected to call in October but could trigger as soon as May.
Yet tax experts point out that any cuts in March will only partially reverse Sunak and Hunt’s brutal six-year freeze on income tax and NI thresholds.
This will run all the way to the 2028/29 tax year and drag four million lower earners into paying basic rate income tax at 20 percent. These are people who weren’t paying any income tax before as they were earning too little.
More than three million will be dragged into the higher rate 40 percent band, while 400,000 more will pay additional rate 45 percent tax.
This is down to a process known as fiscal drag, where incomes rise but tax thresholds don’t, so people hand over more of their money.
Despite this week’s NI cut, “an awful lot of people will still pay more tax in 2024 and beyond” due to repeated tax raids, said Sarah Coles, head of personal finance at Hargreaves Lansdown.
However, Saturday’s NI cut isn’t to be sniffed at. “From January 6, Class 1 NI contributions, which are paid on earnings between £12,570 and £50,270, will be cut by two percentage points, from 12 percent to 10 percent.
“That will cut £149 off the tax bill of someone earning £20,000, £349 for someone making £30,000, £549 for someone making £40,000 and £749 for someone making £50,000. Anyone earning over the higher rate tax threshold will save £754.”
The self-employed will also get an NI cut, but will have to wait until the start of the new financial year on April 6. On that date, Class 2 NI will be axed altogether, saving an average of £186 a year.
The main rate of NI contributions for self-employed people will also be cut by one percentage point, from nine percent to eight percent.
Coles said this applies to profits between £12,570 and £50,270. “This will save an average of £117 for basic rate taxpayers, £322 for those on the higher rate, and £358 for additional rate taxpayers.”
There could be more joy to come.
Hunt is rumoured to be drawing up plans to halve the inheritance tax rate, by cutting it from 40 percent to 20 percent in the Budget, Coles said. “He is also said to be considering cutting income tax by 1p or 2p, with stamp duty rumoured to be in the frame.”
Yet taxpayers shouldn’t be fooled as the fiscal onslaught continues. The capital gains tax (CGT) allowance was cut last April from £12,300 to £6,000. It will shrink again on April 6, from £6,000 to £3,000.
It’s a similar story with the dividend allowance. Last year it was slashed from £2,000 to £1,000. It will halve again from April 6 to just £500.
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The Treasury benefits from other stealth levies, too, such as Insurance Premium Tax (IPT), which has already generated £6billion in revenues so far in the current tax year, even more than inheritance tax.
Yet many don’t realise they are paying IPT, which is just how the Treasury likes it.
IPT is charged whenever you buy a motor, home, pet or travel insurance policies. It’s a rotten tax because it punishes people for doing the right thing and protecting themselves and their belongings.
Insurance premiums have shot up during the cost-of-living crisis and so has the amount we pay in IPT to HM Revenue & Customs, said Cara Spinks, head of insurance consulting at actuaries OAC.
She called for a rethink. “With the Treasury eyeing up tax cuts, minimising IPT increases could ease the pressure on household finances.”
Fiscal drag is the real nightmare, though. Middle income families are feeling the pain as frozen tax thresholds will leave many of them nearly £4,000 worse off in the 2024/25 tax year, according to analysis from rural insurer NFU Mutual.
No matter what Hunt does in March, 2024 looks like another tough year for taxpayers. So don’t be fooled by his tax cut pledges. We’re all paying a lot more.
