Rishi Sunak could save middle income workers £1,642 by delaying a barrage of stealth tax grabs and planned increases in duties that will hit families hard just as the cost of living crisis bites.
The Chancellor has come under increasing pressure from Tory peers to backtrack on planned tax rises this year after inflation hit its highest level since the early 1990s. The Government has already broken key manifesto pledges not to raise income taxes, National Insurance or VAT and broken the triple lock that protected increases in the state pension.
Here’s a glance at what could be cut and the planned increases that could be postponed if HM Treasury pulled out all the stops to shield households.
Delay the National Insurance increase
National Insurance will increase by 1.25 percentage points in April to help fund the NHS in the wake of the pandemic. The rise is estimated to rake in an additional £12bn in taxpayer money.
However, it will cost middle-earning households around £300 a year and much more for higher earning households, according to analysis by the Resolution Foundation think tank. Someone on an annual income of £55,000 could save £564 this year if the Chancellor were to delay the increase by one year, according to calculations from wealth manager Quilter.
Jacob Rees-Mogg, leader of the House of Commons, called for the plans to be abandoned earlier this month. He said it could not be justified at a time of rising inflation and soaring energy bills.
Shaun Moore, of Quilter, said: “The Government needs to tread a fine line between helping to refill the public coffers and ensuring the general public don't feel too much of a financial squeeze. This is certainly one of the small tax tweaks it could make to help soften the impact on people’s bank accounts.”
Unfreeze income tax thresholds
More than one million people will be dragged into the higher rate income tax band by 2026, as the Treasury has frozen the threshold at £50,270. Rapid wage and price inflation will tip 1.2 million more workers into the 40p income tax bracker in the next four years, analysis by the House of Commons Library showed.
Tory MPs have urged the Government to "rethink" the plan to freeze income tax thresholds in recent weeks. Someone earning £55,000 would save £678 this year if the Treasury increased tax bands in line with inflation, calculations from Quilter have found.
Cut green levies and tax on energy bills
Energy bills are primed to soar in 2022. The price cap on annual bills could rise by £588 in April and a further £375 in October to a total £2,240, Cornwall Insight, energy analysts, have warned.
The Government has been called upon to take action and cushion the blow by removing taxes or government levies on energy bills.
Downing Street said on Monday that Mr Johnson was in talks with Mr Sunak and Kwasi Kwarteng, the business secretary, over what to do about energy bills. The Chancellor is reportedly considering a cut to the green levy customers pay to fund investment in renewable energy sources. This could save families up to £300, according to energy analyst Martin Young.
Harness the increase in council tax
Council tax bills will increase by hundreds of pounds this year. Local authorities can increase council tax bills by 3pc without having to hold a referendum, the Chancellor announced during the last Autumn Budget. This means the tax bills could jump up by £400 by 2026, he said.
On top of that, authorities can up bills by another 2pc for adult social care and can carry over increases that were not made last year.