With speculation increasing and showing no signs of slowing down surrounding the potential for Rachel Reeves’ Autumn Budget to increase taxes, one Treasury Minister has spoken today, suggesting the ‘headline’ rate of income tax will not increase later this year.
While mainly discussing Rachel Reeves’ ‘£500 million better future funds’ pledge, Chief Secretary to the Treasury, Darren Jones was pushed on details about the upcoming Autumn Budget including potential tax increases.
It is purely speculative as to exactly what is to come but Jones hinted income tax rate will not increase, likely confirming what many financial experts believe, an extension on the income tax freeze beyond 2028.
Future rates of Income Tax unclear
It is difficult to predict at this stage what is to come in the Autumn Budget, but Jones has suggested the ‘headline’ rate of Income Tax will not be affected.
Speaking on ITV’s Good Morning Britain, Jones said “The thing I can tell you is that our manifesto commitment coming into this election was that we were not going to increase the headline rate of income tax or employee national insurance on working people in the pay slips that people get when they go to work or on VAT because we know that that disproportionately affects people on lower incomes because they spend more of their money on the day to day shop, essentially.”
To confuse things further, the ‘headline’ rate of income tax isn’t specified in Labour’s Manifesto, but they have pledged not to increase the basic, higher or additional rates of Income Tax, which further increases the uncertainty of what it is to come.
What the Government is failing to indicate so far, is whether the current freeze on personal tax rates, will be extended.
Are further tax freeze extensions on the way?
Given the uncertainty surrounding Rachel Reeves’ tax and spending plans – in particular her intentions around Income Tax, there is cause to suggest she may extend the current freeze on Income Tax beyond 2028.
This wouldn’t be the first time Rachel Reeves has extended the freeze on a specific tax rate, as she announced an extension to the freeze on inheritance tax until 2030 in the last Budget and could follow suit once again.
This would technically not break Labour’s manifesto pledge, but with the impact of fiscal drag, it would lead to many taxpayers facing higher bills in future.
The impact of the Income Tax freeze?
The income tax thresholds have been frozen in the UK since 2021/22. Already, many people have found themselves pulled into higher tax brackets as their wages and income keep pace or exceed higher levels of inflation.
Should the extension continue, the risk of being placed in a higher tax band or paying tax on income for the first time increases, should working people continue to receive a pay rise in line with or above inflation.
A freeze extension to 2030 could generate the Government an estimated £7 billion, as they attempt to balance their books and maintain the standards set in their own fiscal rules, but this will come at a cost for working people and businesses.
At this stage, it remains to be seen exactly what Rachel Reeves will announce in the Autumn Budget, but it’s essential that individual taxpayers and businesses themselves for future tax increases.
How can I prepare?
As the comments of the Treasury indicate, nothing is as yet guaranteed, but it doesn’t hurt to be proactive to ensure you are already managing your affairs in a tax-efficient manner.
You should start by understanding your current tax financial position which will help you prepare for the potential changes to come in the Autumn Budget by making use of the reliefs, allowances and tax planning opportunities available to you.
If you would like assistance with this, please speak to our experienced tax team today.