Chief Secretary to the Treasury, Darren Jones has offered some insight into the Government position on Income Tax hikes, suggesting the ‘headline rate’ of income tax will not rise later this year in Rachel Reeves’ Autumn budget.
Speaking primarily about Labour’s new pledge to introduce a £500 million “Better Future Fund”, Jones, was pressed on what the Chancellor might announce in the budget including potential tax increases.
While no firm commitments have been made, Jones gave a strong indication that income tax rates would remain stable, which has led many financial experts to believe that the current freeze on income tax thresholds could be extended beyond 2028.
At this stage, it remains difficult to predict what will be announced in the Autumn Budget. However, Jones did suggest that the ‘headline rate’ of income tax would not be impacted.
Appearing on ITV’s Good Morning Britain, Jones stated: “The thing I can tell you is that our manifesto commitment coming into this election was that we were not going to increase the headline rate of income tax or employee national insurance on working people – in the payslips that people get when they go to work – or on VAT, because we know that that disproportionately affects people on lower incomes, as they spend more of their money on the day-to-day shop, essentially.”
The term ‘headline rate’ itself is not explicitly defined within Labour’s manifesto. However, the party has committed to not raising the basic, higher, or additional rates of income tax, adding a further layer of uncertainty about what specific changes – if any – may occur.
What remains unaddressed by the Government is whether the current freeze on personal tax thresholds will be extended, potentially impacting millions of taxpayers and businesses.
Given the ambiguity around Labour’s tax and spending plans, particularly concerning income tax, there is growing speculation that Rachel Reeves may choose to extend the freeze on income tax thresholds beyond 2028.
While such a move wouldn’t breach Labour’s manifesto commitments, it would result in what is often described as ‘fiscal drag’. This phenomenon sees taxpayers pushed into higher tax brackets due to inflation and wage growth, effectively increasing tax liabilities without altering the headline rates.
And as we’ve seen in previous budgets, Reeves has extended the freeze on inheritance tax until 2030 and may well take a similar approach with Income Tax given the Government’s urgent need to balance the books. It is believed an extension could help raise an additional £7 billion.
However, this would place additional financial pressure on working individuals and businesses alike.
Income tax thresholds have been frozen in the UK since the 2021/22 tax year. As wages and incomes continue to rise in line or outplace inflation, many individuals have already found themselves nudged into higher tax brackets.
If the freeze were to continue, more people risk paying income tax for the first time, or being pushed into a higher band, simply for receiving a pay rise.
While it is still unclear what Rachel Reeves will announce in the Autumn Budget, one thing is certain: individual taxpayers and businesses alike must begin preparing for the possibility of future tax rises, whether direct or indirect.
Although nothing has been confirmed, being proactive in managing your affairs now can ensure you remain in the most tax-efficient position possible.
Start by reviewing your current financial situation. This will allow you to better anticipate and plan for potential changes by taking advantage of available reliefs, allowances, and tax planning opportunities.
If you need advice, support and guidance in understanding your tax position, please do not hesitate to contact our experienced team today.
