TAX INCREASES AND PUBLIC SPENDING CUTSNov 21 2022
Pensioners and those receiving means-tested benefits will be relieved that their 2023/24 payments will be updated in line with the inflation of 10.1%. There will also be further support for those struggling with energy bills. However, this continued support needs to be paid for, and the tax increases and spending cuts will not be popular.
FREEZING INCOME TAX BANDS
It had already been announced that the income tax personal allowance (£12,570) and higher (40%) rate threshold (£50,270*) would be frozen until the 5th of April 2026, instead of increasing each year in line with inflation.
The Chancellor has now announced that these freezes will continue until the 5th of April 2028. As earnings increase, this will result in higher rate taxpayers and is often referred to as a ‘fiscal drag’ because it will raise more taxes without increasing income tax rates.
MORE TO PAY 45% INCOME TAX
The income level at which point the ‘additional’ 45% rate of income tax starts to apply will be reduced from £150,000 to £125,140* from the 6th of April 2023.
The new £125,140 threshold ties in with the £12,570 personal allowance being gradually withdrawn for those with an income of more than £100,000. For these individuals, once their income exceeds £125,140, they will no longer be entitled to a personal allowance and, from April 2023, will move straight into 45% income tax.
*It should be noted that, for Scottish taxpayers, income tax rates and thresholds are, for certain income types, separately set by the Scottish government.