UK makes more people pay top rate of tax as part of budget squeeze

Britain’s Chancellor of the Exchequer Jeremy Hunt walks at Downing Street in London, Britain, November 17, 2022. Photographer Peter Nicholls

By Reuters

The British government announced on Thursday plans to freeze income tax allowances and lower the threshold at which people start to pay the highest rate of income tax, in order to stabilise the public finances.

Finance minister Jeremy Hunt said he would freeze income tax allowances until 2028 and was lowering the threshold above which the 45% top rate of income tax is paid to 125,140 pounds ($148,053) from 150,000 pounds.

Hunt said that he is “asking more from those who have more” as he also set out plans freeze the thresholds for national insurance and inheritance tax. Those earning more than 150,000 pounds will pay just over 1,200 pounds extra a year.

“Even after that, we will still have the most generous set of tax-free allowances of any G7 country,” Hunt told parliament in a speech on the public finances aimed at restoring market confidence in the government’s finances after the 50-day premiership of Liz Truss.

Her government had said it would abolish the top rate of income tax, before reversing course amid financial turmoil triggered by her plans. She was forced to resign last month and was replaced by Rishi Sunak as prime minister.

The Conservatives announced in their election manifesto 2019 that they would not raise the rates of income tax or national insurance.

Hunt said although his announcement will lead to a “substantial” tax rises, the government had not raised the headline rates of taxation.

The government also announced it would cut the amount shareholders can earn in dividends before they begin paying tax from the current level of 2,000 pounds ($2,366) to 1,000 pounds next year and 500 pounds from 2024.

The amount people can claim tax-free for capital gains will fall from 12,300 pounds currently to 6,000 pounds next year and 3,000 in 2024, Hunt said.