The commitments made by both the Conservative Party and the Labour Party not to increase income tax and national insurance (NI) may seem too good to be true. With the General Election on the horizon, taxpayers are faced with the challenging task of determining the believability of these claims.
Keir Starmer, the leader of the Labour Party, has reassured the public that under their leadership, there will be no rise in income tax, national insurance, or VAT. However, the reality is that both taxes will continue to increase despite these assurances. The ongoing six-year freeze on income tax and NI thresholds is set to carry on until 2028, leaving taxpayers with no alternative but to pay more to HMRC each year.
This freeze effectively translates to an income tax increase of 6p in the £1, though it will not be explicitly stated in any manifesto. As a result, Britons will bear the financial burden regardless of the election outcome. Additionally, the freeze is projected to push four million individuals into paying basic rate tax, with an additional 2.7 million paying higher rate tax and 600,000 individuals becoming subject to the additional 45 percent tax rate.
Both major political parties are surreptitiously implementing tax hikes “through the back door,” as stated by Laura Suter, director of personal finance at AJ Bell. Given the nation’s precarious financial situation, it seems unlikely that there will be any relief from these tax increases. The freeze on tax bands is set to continue, and reversing it would come with significant costs.
One notable difference between the two parties is the Conservatives’ commitment to increasing the personal allowance, particularly for pensioners. Referred to as the triple-lock-plus, this move will save approximately eight million pensioners around £100 next year and up to £275 by 2030, although it will not benefit the poorest pensioners with incomes below the personal allowance. Conversely, Labour has chosen not to adopt this policy.
Another key distinction lies in the Conservatives’ pledge to further reduce NI by 2027, in addition to the two reductions of 2p each implemented this year. While Labour has no plans to cut NI, the Conservatives’ NI cuts will have a limited impact on pensioners, as they are exempt from this levy once they reach retirement age.
Furthermore, the freeze on tax thresholds has broader implications, as it also pushes individuals into paying higher rates across various financial areas. Labour’s manifesto remains unclear on whether it will increase inheritance tax and capital gains tax, leaving many uncertainties regarding potential future tax hikes.
Given this concerning landscape, taxpayers are left to grapple with the difficult decision of determining which party is the lesser of two evils when it comes to taxes. While the Conservatives’ recent track record on taxes leaves much to be desired, it may seem more favourable to some. However, the upcoming election will ultimately determine the direction of tax policies.