Labour and Tories have pledged NOT to hike income tax – here’s what they’re really doing | Personal Finance | Finance


Taxpayers face a grim choice between the Conservatives, who have driven the UK tax burden to a 70-year high, and Labour, which looks set to drive it higher still. Keir Starmer has said that Labour will not increase income tax, national insurance (NI) and VAT if it wins.

Yet our income tax and NI bills will keep rising, whatever he says.

Repeated hikes to both levies are already baked in thanks to Tory PM Rishi Sunak and Chancellor Jeremy Hunt, whose six-year freeze on income tax and NI thresholds continues all the way to 2028.

In that time, the personal allowance will be held at £12,570, and the higher rate 40 percent tax threshold at £50,270.

If they’d risen with inflation the personal allowance would have hit £15,989 by 2028 while the higher rate band would have climbed to nearly £64,000.

As earnings rise, taxpayers will hand more of their hard-earned money to HMRC every year.

The freeze is the equivalent of an income tax hike of 6p in the £1. That figure that will not appear in any manifesto, yet we will pay whoever wins.

The freeze will push a four million into paying basic rate tax tax, according to the Office for Budget Responsibility, while another 2.7million will pay higher rate tax and 600,000 will pay additional rate 45 percent tax.

By maintaining the freeze, both parties are “bringing tax hikes in through the back door”, said Laura Suter, director of personal finance at AJ Bell.

Given the parlous state of the nation’s finances, we should not expect any respite, she added. “The freeze on tax bands is baked into the budget for future years. Unwinding this would come with a large price tag.”

Labour has even less of an incentive to end the freeze, since it can blame it all on the Tories.

Yet there are two clear differences between Conservative and Labour policy. First, the Tories will increase the personal allowance if they win, although only for pensioners.

It will do this by increasing the personal allowance in line with the state pension triple lock each year.

This has been dubbed the triple-lock-plus and will save eight million pensioners around £100 next year, rising to £275 by 2030.

However, it will not benefit the poorest pensioners with incomes below the personal allowance. Also, as Paul Johnson, director at the Institute for Fiscal Studies, has pointed out, this isn’t really a tax cut. Pensioners are merely avoiding a £100 tax increase, rather than receiving an actual giveaway.

Still, this is better than they’ll get under Labour, which has declined to match the policy.

The second big difference is that the Conservatives pledged in their manifesto to cut a further 2p off NI by 2027. That is on top of the two cuts of 2p each made this year.

This year’s cuts have already knocked £900 off the tax bill of an employee on £35,000 a year.

A third NI cut would save them a further £450. Sunak has also pledged to gradually abolish NI for the self-employed during the five-year term of the next Parliament.

By contrast, Labour has no plans to cut NI.

However, a Conservative NI cut will mean little to pensioners, as they do not pay the levy once they reach retirement age.

These NI cuts will only partly alleviate the misery of frozen tax thresholds, said Sarah Coles, head of personal finance at Hargreaves Lansdown. “Whoever is elected, you’re set to pay more tax.”

Freezing tax allowances does not just mean bigger income tax and NI bills, Coles added. “It also pushes you into paying higher rates on everything from capital gains to savings and dividends held outside of an Isa.”

We also know that Labour will scrap the VAT exemption on school fees, target wealthy non-doms and hike stamp duty on overseas property buyers.

What we don’t know is whether it will hike inheritance tax and capital gains tax, too. Its manifesto is deliberately vague.

The Tories have a rotten record on taxes lately but some taxpayers may decide it is better the devil you know.

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