Budget will be ‘painful’ for higher paid workers on benefits
Tax rises could break Labour’s manifesto promises
Keir Starmer’s speech suggests the upcoming October Budget could hit higher paid workers the hardest and break Labour’s tax manifesto promises.
Robert Salter, Director said
When the Prime Minister says ‘Those with the broadest shoulders must bear the highest burden,’ he means despite what Labour said in their manifesto, that higher paid workers will suffer significant increases in their personal, ongoing monthly tax burden.
This could include rises in income tax, National Insurance (NIC), Inheritance tax (IHT) and Capital Gains Tax (CGT.) Meaning for higher paid workers, things may indeed be ‘worse than we ever imagined’ in terms of their future tax burden.
This could mean that even if the ‘headline rates’ of income tax or NIC remain the same, the Government increases the tax burden on higher-rate taxpayers via the ‘back door’. For example, the Government could extend employee / self-employed (primary) NIC into new areas, e.g. letting income or dividend income, or increase the tax charge which is imposed on employer-provided benefits in kind, such as company cars or private medical insurance.
The reason the Government gave for scrapping Winter Fuel Payment was that the scheme ‘wasn’t particularly well-designed.’ More than anything, this suggests that this Government doesn’t like universal benefits and may attack more of them. It also indicates that the Government has no problem with people suffering an effective tax liability of 100%, as is the case where someone just £1 in excess of the relevant pension credit amount loses all of their Winter Fuel Payment. Which means it is likely that the Government will not be removing any of the numerous flaws and anomalies within the UK tax system such as the child benefit clawback rules in the forthcoming budget.
However, raising those taxes may prove counterproductive for the Government in the long run. Increasing income tax & NIC rates will push more parents away from private schools, further reducing the amount that VAT on school fees will collect for the Government. Meaning this will actually end up costing them money rather than being a tax collection tool.
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If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or Robert Salter using the form below.
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