The Budget

I thought the freezing of the personal tax allowance was going to last until 2028.

John Crace's response to the interviews with Hunt:

www.theguardian.com/politics/2024/mar/07/jeremy-hunt-done-his-best-isnt-nearly-good-enough

Thanks for the link Dinahmo. Brilliant article👏👏👏

If HMRC went after the big businesses that purposely avoid/evade tax and tax the ones that make extraordinary profits then the government could leave us pensioners alone! I resent paying tax on the money - that was already taxed when I earned it- when it’s a pittance compared to what the likes of Amazon etc could be paying! I’ve done my bit over the last 40 years!

HMRC does ‘go after’ businesses which evade tax. That is not the same as lawful tax avoidance. And it’s not up to HMRC to levy additional tax on extraordinary profits - that is the job of the government and has been done in the case of the windfall tax on energy companies, extended in the budget yesterday.

Amazon pays the UK tax that is lawfully due on its profits - it pays little tax because of the way it and its activities are structured and it makes use of lawful tax avoidance opportunities. That is by no means only in the UK btw - it’s the same in Europe and the US.

I’m wondering about the hinted at intention to eventually abolish NI contributions. How can a government do this? Will the basic rate of tax be increased to compensate? Or will the tax bands never raise and eventually disappear altogether? I’m puzzled.

Impossible to say how it will be accomplished. It’s a long term plan. There’s nothing special about NI, it just goes into the pot with all other taxes. It doesn’t fund the NHS or pensions.

I know that GMS but if it was simply cut out, that would leave a massive hole in the tax take. That hole would have to be filled, but I’m wondering how it could be done. As I said in my other post, I can see ways it could be managed, but I can’t see the electorate being overjoyed about any of them.

Plus we’re told that to be eligible to claim the state pension, people must have a certain number of contributions of NI. I realise that NI doesn’t actually pay for state pensions, but the government are saying that eligibility for the state pension is dependent on payment of NI for a number of years. Given that, will the state pension become means tested? Because the contract between the government and the employee is broken without the payment of NI contributions. For what it’s worth, my sons are both convinced that state pensions will become means tested by the time they would be eligible to claim it, and getting rid of NI seems to me to be a possible mechanism for doing this.

Reporting this morning that pensioners have lost out to the tune of £1000. That is a lot.

Whitewavemark2

Reporting this morning that pensioners have lost out to the tune of £1000. That is a lot.

How did they work that out?

I’ll post the article.

Actually I can’t, but look at the BBC app. And newspaper section.

Telegraph and Mirror both carry it on their front pages.

I’ll have a look in the. Guardian later.

Hmmm ... I still don't get it. For somebody to "lose out" on £1000, presumably from paying more tax, he/she would expect a £5000 increase in income (assuming basic rate tax). I bet they're aren't many pensioners expecting their income to increase by that much. There was no way in the world that any government would raise the tax threshold by that much in a year.

I don’t get it either and I haven’t found any reasoned argument.

The number £1000 comes from the Resolution Foundation. You can read the analysis here:

www.resolutionfoundation.org/app/uploads/2024/03/Back-for-more.pdf

Scroll down to page 24.

^ … another key driver of rising personal taxes is that taxes have been increased for pensioners. Around 8 million pensioners are taxpayers, losing from freezes to Income Tax thresholds but not benefitting from NI changes (because they are already exempt from paying NI). Compared to where the personal allowance might have been in 2027-28 without freezes, basic rate pensioners will be around £700 worse off and – taking into account also the higher-rate threshold freeze – the average taxpaying pensioner will lose around £1,000. ^

The personal tax allowance was frozen from 2021-22. In other words over six years some pensioners will pay a total of £700 - £1000 more tax. This averages at £117 to £167 per year or £2.25 to £3.20 per week.

Using the example of someone receiving full new state pension of £203.85 pw who has other income putting them on the cusp of paying tax in this current tax year. Their pension will increase to £221.20 in April 2024, a rise of £17.35 per week. It pushes them over the frozen tax threshold so they pay tax on £17.35 @ 20%. £3.47 per week.

Thank you. The words in bold type show that this ‘headline news’ is extremely misleading.

But every tax payer loses out by tax thresholds not being increased, there is nothing exceptional in the way it affects pensioners.

We need also remember that pensioners also benefit from the triple lock, where anyone at work is dependent on what pay rise their employer gives them and many have seen no increase in their pay for some years.

Absolutely right MOnica. And Jeremy Hunt has confirmed that the triple lock will apply next year too. It seems that some pensioners expect special treatment.

Jeremy Hunt is not going to be in office next year though.

I don’t think pensioners are asking for special treatment, when there are very few taxpayers of any age who would not be in favour of the personal allowance increasing in an annual basis to account for inflation.

He might be -who knows?

As I have already said, I expect the freeze on the personal allowance to be lifted in the autumn statement if that is a fiscally responsible thing to do. At present, clearly it is not.

I bet you an amount not to be disclosed as I’m sure gambling is prohibited on Gransnet that he won’t be.

It would have been more fiscally responsible to raise the personal allowance than to cut national insurance in my opinion.

I don’t think Hunt will be in office after whenever the next election is. I hope he loses his seat too because I have never had any time for him.

I agree that the personal allowance should have been raised, but I believe it’s all a long term plan to make state pensions means tested. The route via cutting NI contributions and freezing personal allowances is clearly visible now.

I think pension increases should be tied to wage growth so that we only get, on average, what the population as a whole is getting.

I agree with you, Casdon.

It’s highly unlikely that the frozen personal allowances will change under this government (even if it survives until next January) as they are part of the government’s long term plan until 2027-28 to gradually raise taxes through fiscal drag. Raising personal taxes is one of the targets underpinning the current fiscal rules.

To recap. In the March 2021 Budget, Sunak - then Chancellor - announced that the personal allowance and higher-rate thresholds of income tax would be frozen at 2021-22 levels for four years up to and including 2025-26.

The government then set out new fiscal rules in November 2022, after the previous set was on course to be missed due the economic effects of the cost of living crisis and higher interest rates.

In his Autumn Statement 2022 Chancellor Hunt extended the freeze by a further two years to 2027-28.

The current fiscal rules are that:

1. Debt should be on course to fall as a share of national income in five years’ time i.e. by late 2027.

2. Public sector borrowing should not exceed 3% of GDP in five years' time i.e. by late 2027.

3. Some types of welfare spending must remain below a pre-specified cap. (Payments to pensioners are specifically excluded.)

Fiscal rules are monitored by the OBR. The Charter for Budget Responsibility allows the Treasury to temporarily suspend the rules in the event of a “significant negative shock”. The mandate does not specify what would constitute such a shock so it is at the Treasury’s discretion.

But it does follow that a significant negative shock is going to be one that necessitates a significant increase in public borrowing. If the government had to borrow more it wouldn’t be reducing taxes.

As I have said before, for someone whose only taxable income is the state pension paid at a rate of no more than the current new state pension, they are not going to be caught by fiscal drag until April 2026 and only then if the pension continues to rise by at least 8.5% a year.