Last week Chancellor Kwasi Kwarteng announced a package of tax cuts aimed at getting the economy going. So what does it all mean for your finances? The big news is that income tax is being cut. From next April, the basic rate of income tax will fall from 20% to 19%. According to the government this will mean 31 million people will save £170 a year on tax.
On top of this the 45% additional rate of income tax will be abolished in April 2023. This is paid by anyone earning more than £150,000 a year. Getting rid of it will save someone with an annual salary of £200,000 almost £3,000 a year.
The Chancellor also announced that the 1.25% rise in National Insurance due to take effect in November will not go ahead. This is expected to save nearly 28 million people an average of £330 per year, says the government. However, “the impact varies considerably depending on what you earn, as there are weekly thresholds for National Insurance”, says Kevin Peachey on BBC News.
Research by the Centre for Economics and Business Research (CEBR) for The Mail on Sunday estimates that the frozen tax brackets will mean “nearly five million lower-paid workers who currently pay no income tax will be dragged into the net over the next four years”, says Patrick Tooher in The Mail on Sunday. “Another 3.8 million taxpayers will be pulled into the 40% band as wages rise.”
This is predicted to mean an extra £46bn will be paid in income tax. “It means the haul from the frozen allowances will offset the Chancellor’s giveaways and has provoked accusations of robbing Peter to pay Paul.”