Don’t expect any tax giveaways from the new Government
Rishi Sunak’s appointment as Prime Minister will see a completely different perspective on the UK’s tax policy to his predecessor. It appears certain that Jeremy Hunt will continue as Chancellor, and Sunak and Hunt should have the opportunity on 31 October to set out their tax agenda at the Medium-Term Fiscal Plan announcement.
In Sunak’s time as Chancellor, he was the architect of pushing the UK’s tax burden to its highest level in 70 years. Given the current state of play with the UK economy, Sunak and Hunt are unlikely to row back from further tax increases, with Jeremy Hunt committed to generating additional tax revenue and public sector efficiency savings to reduce the UK’s debt cost.
The 1.25% reversal to National Insurance is due to take effect from 6 November, but Sunak and Hunt may scale back the cut so that it only applies to basic rate taxpayers (anyone earning less than £50,271) from next April – therefore, someone earning above the higher rate would pay National Insurance at 3.25% (rather than 2%).
The new Government could now go further on tax increases and apply National Insurance to rental profits and capital gains. In addition, pensions tax relief will now be a renewed target (given how much it costs the Government) and we could see a proposal to limit relief to the basic rate – this would be incredibly bold and hurt the traditional Conservative voter.
A few months into his role as Chancellor, Sunak asked the (now redundant) Office of Tax Simplification to review Capital Gains Tax, and the OTS proposed aligning Capital Gains Tax to Income Tax – with Sunak’s elevated role, the spotlight will be turned on Capital Gains Tax again, but the case for increasing the current 20% rate is limited given how little the tax raises (around £15 billion).
Rishi Sunak committed to reducing basic rate Income Tax to 19% in April 2024 in his last statement as Chancellor. During the summer Conservative Party leadership contest, one of Sunak’s late pledges on tax was to reduce basic rate Income Tax gradually to 16% by the end of the next Parliament (2029). I cannot see that he would revisit this proposal, given the recent U-turn on cutting basic rate Income Tax to 19% – it would also cost an astronomical sum, when you consider a 1% cut would be worth £5 billion.
Arguably, Sunak’s ‘stealth’ move to freeze personal tax and thresholds until April 2026 has had the most dramatic effect, more so given record inflation. Apparently, Hunt and Sunak are both attracted to extending the freeze until 2028, in a signal to the international markets that the UK is committed to balancing its books over the long-term.
Whether Sunak likes it or not, the UK’s ‘non-dom’ regime will come under pressure from the Labour opposition, who have proposed abolishing it completely to raise £3.2 billion. Although Sunak’s wife, Akshata Murthy, confirmed that she would no longer claim the ‘non-dom’ status in relation to her UK taxes, Sunak’s critics will push him to act to make changes to the ‘non-dom’ tax regime. I expect Sunak will resist the social and political challenge to make any dramatic moves around the ‘non-dom’ regime, but he may announce a consultation on alternative options to delay making a decision in this Parliament,
Don’t expect any ‘giveaways’ from Sunak and Hunt, such as abolishing the high-income child benefit charge or removing the tapered personal allowance when someone’s income reaches £100,000 – the tone now is very different, and the tact from a Rishi Sunak Government is likely to be focused on increasing tax receipts and cutting spending, in order to reduce the debt cost.