Taxpayers will be squeezed over the next five years by the combined impact of previously announced tax increases, despite the chancellor pledging to cut taxes in future, finance experts warn.
Rishi Sunak refrained from making big changes to personal tax allowances and rates in Wednesday’s autumn Budget.
But he also did little to alleviate the effects of several substantive measures introduced earlier this year, including a freezing of personal allowances and a rise in national insurance.
Sunak acknowledged that, due to the effect of the planned increases, UK taxes will hit their highest level as a percentage of gross domestic product since the 1950s.
“I don’t like it, but I cannot apologise for it,” Sunak added. “It’s the result of the unprecedented [Covid-19 pandemic] crisis we faced and the extraordinary action we took in response.”
The chancellor instead pledged to cut taxes further down the line. He said: “My goal is to reduce taxes. By the end of this Parliament, I want taxes to be going down not up.”
However, tax experts warned that people could expect a financial hit in the meantime.
“No news isn’t always good news: higher taxes didn’t get a mention in the Budget speech, but unfortunately, you’re still likely to pay more tax next year,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, an investment platform.
From next April, national insurance contributions for employees, the self-employed and employers are due to increase by 1.25 percentage points. There will also be a 1.25 percentage point increase on dividend tax.
Meanwhile, the personal allowance will be frozen at £12,570 and the higher rate threshold at £50,270 until 2025/26. The capital gains tax annual exemption is also set to remain at £12,300 until 2025-26, alongside the pension lifetime allowance at £1.073m, the inheritance tax nil-rate band at £325,000 and the residential nil-rate band at £175,000.
Any rises in the value of investments, properties or pay will have the effect of pushing more people over these thresholds and leave them paying more tax, Coles warned.
Nimesh Shah, chief executive at Blick Rothenberg, a tax and advisory firm, said the government had taken a “tactical” decision to announce the tax increases earlier in the year — but the measures would nevertheless leave many with less money in their pocket.
He said: “A family of four with one working parent earning £62,000 will be £649 worse off per annum in 2022-23 than 2010-11 with changes to rates, allowances, and thresholds.”
Shah added: “There was some limited respite for families — freezing of fuel duty, an increase to the national living wage to £9.50 and a change to the mechanism for tapering universal credit, but it doesn’t go far enough, especially with a 1.25 per cent increase to national insurance coming next April.”
Documents released with the Budget revealed some smaller tax changes, not mentioned in the chancellor’s speech.
They included a doubling of the time people selling residential property have to report and pay capital gains tax from 30 days to 60 days. The change, urged by professional bodies concerned about the limited time allowed to comply, takes place with immediate effect.
But tens of thousands of middle- and high-earning families involved in a dispute with HM Revenue & Customs face potential bad news. They had hoped to claim back money paid under the so-called high-income child benefit charge, after the tax authority lost a legal case. But documents released with the Budget revealed that HMRC plans to bolster the position it took in levying the charges.