UK is the only major economy to raise taxes during a cost-of-living crisis, study finds – Reuters

Rishi Sunak is under renewed pressure to halt a £13bn National Insurance premium hike next month after a new study found the UK is the only major global economy to have raised taxes on people working during a cost crisis life.

Labor called on the chancellor to scrap a 1.25% hike planned for April 6 for workers and employers, using the money he has saved up to buy campaign sweeteners for voters.

The study comes after the Institute for Financial Studies (IFS) found that soaring inflation means the Chancellor will receive an additional £12.5bn from an “invisible tax” in last year’s budget.

When Sunak announced last March that he would suspend his income tax threshold for four years, with inflation around 1%, the measure was expected to bring in £8bn.

But with the Consumer Price Index (CPI) currently above 5% and expected to rise to 8%, the IFS said there are currently £20.5bn in additional taxes.

Tom Waters, Senior Research Economist at IFS, said: “Typically, tax thresholds rise with inflation.

“The tax cap freeze is now on track to raise taxes by £20.5bn, two and a half times more than originally planned. And that’s on top of a £13bn increase in National Insurance Contributions (NIC) planned for next month.

“This episode highlights the danger of imposing nominal tax thresholds for extended periods — unexpected changes in inflation could make planned tax increases much larger or smaller than expected. »

Labor Department spokesman Pat McFadden said the increase in NIC alone was equivalent to 0.5% of GDP in additional taxes, while households face rising bills for essentials such as heat, gasoline and food.

In contrast, the partisan study found that Germany plans tax cuts totaling 0.5% of GDP for 2022, Italy 0.2% and France 0.1%.

Among other members of the G7 group of largest democracies, Canada and Japan have announced no increase in personal tax rates, while the Congressional Budget Office forecasts a fall in tax revenues in 2022.

“There are global factors driving up energy prices and inflation in many countries,” McFadden said.

“But what sets the UK apart is this government’s decision to impose higher taxes on workers at the same time as energy and food prices rise.

“Why is the government so determined to exacerbate the cost-of-living crisis by continuing these tax increases now, especially when the Treasury Department keeps reporting that the conservative electoral network has secured tax cuts ahead of the next election? »

The NIC hike, announced last September, broke a Conservative manifesto promise not to raise large personal taxes during the legislature.

This will result in someone earning £20,000 with a £130/year NIC increase, and someone making £30,000/year by paying an additional £255.

But Prime Minister Boris Johnson said the tax would help pay for “the biggest catch-up program in NHS history” as the health service tries to close the backlog of care delayed by the Covid pandemic.

From April next year, it will be renamed the Health and Social Assistance Tax, and over time, an increasing share will go towards a new care ceiling designed to ensure that older homeowners do not have to sell their property to pay for care. .

Mr Sunak is under mounting pressure to back out of the hike or delay it for a year in the hope that the cost-of-living crisis eases, including from restless Tory supporters worried about raising the general tax to levels not seen since the 1960s.

But the chancellor and prime minister stood their ground, writing a joint op-ed in January saying they saw the tax as the “right plan” to fix the health and welfare system.

A spokesman for the UK Treasury said: “The Health and Social Assistance Tax will provide a permanent source of funding needed to support the NHS and fix the welfare system.

“We are dedicating around £21bn this fiscal year and next to help living wage families, including targeted support for energy bills, lowering the Universal Credit sliding rate to help low-income people save more of what they earn and freeze on taxes on alcohol and fuel to cut costs. We are also raising the National Living Wage, which means full-time workers will see a £1,000 increase in their annual earnings.

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