Chancellor Rishi Sunak has defended his tax changes in yesterday’s budget as “a fair way to help solve the problems that we need to”.
Among his revenue-raising measures at the budget, Mr Sunak announced the income tax personal allowance – the level above which people pay income tax – will be frozen at £12,570 from next year until 2026.
And the threshold for higher rate income tax will be frozen at £50,270 over the same period.
Some have described the move as a “stealth” tax, as they will drag more people into paying basic rate or higher rate income tax.
The changes will see 1.3 million more people pay income tax and create one million more higher rate taxpayers, according to the Office for Budget Responsibility (OBR).
Speaking to Sky News on the morning after the budget, the chancellor said he wanted to be “honest with the country about the challenges coronavirus has caused” for the UK economy.
He has outlined how the government’s huge spend on economic support during the COVID crisis has seen borrowing rise to levels not seen since the Second World War.
But Mr Sunak stressed that freezing tax thresholds was “a progressive way to raise money” to begin to deal with the UK’s debts.
“I think, crucially what people need to understand is no one’s take home pay that they have today is affected or lowered by this policy,” he told Sky News.
“What it does do is remove the incremental benefit that they might have experienced in the future as inflation fed through to their wages.
“But their current cash take home pay isn’t affected. And also, crucially, those on higher incomes are affected more by this policy.
“It’s a very progressive policy.”
The chancellor pointed to analysis that the richest 20% of households will end up contributing about 15 times more than those on the lowest incomes.
“That’s why this is a fair way to help solve the problems that we need to,” the chancellor added.
“But, crucially, no one’s cash take home pay is affected and it doesn’t come into force just now because we want to support the recovery in the short term as we are doing.”
Mr Sunak also used his budget to hike the rate of corporation tax, paid on company profits, from 19% to 25% in 2023, although smaller businesses will be protected from the rise.
The chancellor said he wanted large companies “to also play their part in helping us to fix the problem”.
“I made those choices specifically because I wanted to protect working people from increasing in their tax rates,” he said.
“So we honoured our manifesto commitment not to increase the rates of tax on National Insurance, income tax or VAT – that was important for me to do.
“And we also wanted to protect public services and protect small businesses.
“That’s why I believe the two measures I set out yesterday are the right measures, they’re fair and they will support our economic recovery.”