BUDGET 2017: Hammond plans to RAISE income tax for 30 million households | City & Business | FinanceHeat Profit
The move could raise up to £3.1billion a year by freezing the point when people start paying the new basic rate income tax and higher rate income tax.
At the moment this lies at £11,500 and £45,000 respectively. After the manifesto target is reached it would rise to £12,500 and £50,000.
Each year both of these thresholds increase by consumer price inflation.
The Resolution Foundation, a think tank, believes due to the rate of inflation being higher than forecast that basic rate commitment will be achieved in April 2021 and the higher rate in April 2022.
This means that the threshold could be frozen in 2022.
As well as a further 30 million people paying more tax, hundreds of thousands will be dragged up into a higher tax brackets.
The Treasury has stated Mr Hammond must raise funds in next Wednesday’s budget without drawing out a Commons vote on the specific tax rise.
The Rooker-Wise amendment, outlines that the vote that puts this in to effect needs to only take place before the thresholds increase.
Treasury rules dictate that the Chancellor would be able to “spend” the capital raised by the future tax increase in the budget next week.
The aim is to spend the money on cash for the NHS, help with stamp duty for first time-buyers and injecting money into the universal credit welfare system.
Numerous Conservatives have stated their worries.
One told The Times: “The idea that we will be able to raise £3billion in income taxes the year before the election is ridiculous.
“This won’t survive. The opposition will find a way to vote this down.”
Another Conservative said: “This will just end up going on the national debt.”
Torsten Bell, director of the Resolution Foundation, said: “The wish to avoid votes in the short term would leave the country with an odd pattern of rises in income tax thresholds now followed by real reductions later, instead of a more sensible slower pace of increases across the next five years.”
The Chancellor may be fighting another battle soon if he decides to go ahead with plans to change the VAT rules for small companies.
This move will entail reducing the £85,000 turnover threshold for VAT closer to global standards like the EU average of £20,000.