The Chancellor, Jeremy Hunt, has said that a future Conservative Government will not increase any rate of income tax or National Insurance for the duration of the next Parliament. He has confirmed that income tax thresholds will remain frozen until 2028 as already legislated, but that the freeze would not continue beyond this point.
Personal Allowance for Pensioners
One important exception is the personal allowance for pensioners. Whilst both the Conservative and Labour parties have committed to maintain the pensions ‘triple lock’ (where the state pension rises in line with the higher of average earnings, inflation or 2.5 percent), the Conservatives have announced a ‘triple lock plus’ policy. This would see the personal allowance for pensioners increase by the same percentage as the triple lock. The intention is to ensure that the state pension will not, in isolation, push a pensioner into tax.
The Chancellor seems to be continuing his focus on incentivising work through the tax system and has said that tackling distortions in income tax would be a high priority for a Conservative Government. Some distortions can produce high effective tax rates; one example of such a distortion is for earnings between £100,000 and £125,140 where an effective tax rate of 60 percent can arise due to the tapering of the personal allowance. The removal of free childcare at this point can exacerbate that position even further.
Mr Hunt also reiterated his party’s ambition to abolish National Insurance altogether over the longer term when “it’s affordable”, which would reduce the distortion between those who receive earned income rather than unearned income, as well as between those below and above pensionable age.
Labour’s Stance
Labour has also confirmed it will not raise income tax or National Insurance. Sir Keir Starmer has said that Labour would not undo the freeze on income tax thresholds that will stay in place until 2028. No specific statements have been made by Labour on addressing distortions in the tax system, however the party has been carefully managing expectations around tax cuts, including the abolition of National Insurance. When asked if Labour would commit to a triple lock plus for example, the Shadow Chancellor Rachel Reeves told reporters “I want taxes to be lower, but I’m not going to make any commitment where I can’t say where the money is coming from. I will only announce those changes when we can afford to do so”.
Liberal Democrat Munira Wilson has said her party would not “look to” raise income tax or National Insurance.
