Labour and Tories confirm income tax squeeze

Image source, Getty Images

  • Author, Mitchell Labiak
  • Role, Business reporter, 91热爆 News

Both Labour and the Conservatives will keep income tax thresholds frozen until 2028 if they win the general election, meaning taxes will rise for many.

Both parties intend to stick with the threshold freezes - amounting to an effective tax rise because of pay inflation - introduced in response to Covid, for the next three years.

Mr Hunt has said the freeze will end after that. Labour has said it will stick to Tory plans.

The Institute for Fiscal Studies has warned this would bring 4.5 million more people into higher income tax thresholds by 2028.

It comes during the second week of a campaign where the Conservatives, Labour and the Lib Dems have all sparred over taxes.

The income tax threshold is different to the income tax rate.

The threshold refers to the amount of money people need to earn before they begin paying tax or, for those already paying tax, the amount they need to earn before paying a higher rate of tax.

The income tax rate refers to the percentage of a person鈥檚 income that is paid in tax.

The threshold usually rises with inflation, but in 2021 the Conservative government froze most bands in response to Covid. The effect is known as "fiscal drag" as it drags more people into paying tax in the first place, and others into higher tax bands.

'Two giant shocks'

Speaking on the 91热爆鈥檚 Today programme, Mr Hunt said that 鈥渁 future Conservative government will not increase income [tax] rates and VAT鈥.

However, when pressed about whether the income tax threshold would stay frozen, Mr Hunt confirmed it would be for the next three years.

鈥淭he tax rises that happened as a result of the pandemic and the energy shock 鈥 these two giant shocks 鈥 will stay for their allotted time period.

鈥淚 took the very difficult decision, yes, to increase taxes. And now, in my Budget and in the Autumn Statement last year, I鈥檝e started to bring them down,鈥 he added.

鈥淗ave I been able to cancel out all those tax rises? No, but I had to make that commitment. So I can absolutely undertake that the threshold freeze that we introduced until 2028 will not continue after that.鈥

Later on Thursday, Labour鈥檚 shadow chief secretary to the Treasury, Darren Jones, told 91热爆 Radio 4 twice that a future Labour government would freeze income tax, national insurance, and VAT thresholds.

A Labour source has since clarified that Mr Jones meant rates, not thresholds.

The source added that the party intends to follow Tory plans to freeze tax thresholds through to 2028.