RUTH SUNDERLAND: Come clean on stealth tax

  • Fair and transparent tax system should be an aim for any democracy
  • UK is in the grip of a vast stealth tax heist
  • Many taxpayers unaware multi-billion pound sneaky assault is even happening 

Divine intervention: Rishi Sunak opted for a freeze on allowances and thresholds in 2021

Divine intervention: Rishi Sunak opted for a freeze on allowances and thresholds in 2021

A fair and transparent tax system should be an aim for any democracy. Voters have a right to clear information on how much they will be expected to pay, and where their money will go.

Stealth taxes, where governments use devious tactics to pick citizens’ pockets, are the opposite of this principle.

The UK is in the grip of a vast stealth tax heist. Many taxpayers will be unaware this multi-billion pound sneaky assault is even happening, let alone its enormous scale.

No-one, apart from a few batty socialist millionaires, wants to pay more tax. When there are legitimate reasons, governments should at least be honest. Yet here we are, only just waking up to the enormous impact of a move first announced by Rishi Sunak when chancellor in 2021. Rather than raise headline rates, Sunak opted for a freeze on allowances and thresholds.

These normally are increased each year to keep pace with the cost of living. Keeping them static leaves people poorer. Jeremy Hunt extended the freeze to 2027-28, so it will last a total of six years if he does not tone it down or reverse it.

Adding insult to injury, the moratorium has raised far more money than envisaged, because of runaway inflation. Initially, it was anticipated it would raise £8billionn a year by 2026. If only.

The Mail on Sunday highlighted a new estimate from the Growth Commission think tank based on figures from the Centre for Economics and Business Research. This suggests the stealth raid will leave voters worse off to the tune of £75billion annually by 2027/28, equivalent to 9p in the pound on income tax, unless Hunt acts.

That is higher than other estimates, including a recent one from the Institute for Fiscal Studies (IFS) that put it at £52billion.

These analyses differ due to assumptions made about inflation and wages. The consensus though, is that whatever the actual figure turns out to be, it will be colossal.

Millions of low income Britons will be pushed into paying tax, including many pensioners who were below the threshold.

And the number of reasonably well off people pulled into the higher 40 per cent bracket is on course to at least double to nine million by 2027/28.

Economists call it fiscal drag. Whatever name one uses, it is a very bad way of taxing people. It is underhand, poorly understood and undemocratic.

The full effects have neither been properly presented to MPs nor spelled out to the public. A measure originally expected to raise £8billion a year and now hauling in many multiples of that, merits fully informed debate.

The stealth raid is relevant to the discussion over whether Hunt can afford tax cuts in his autumn statement. Despite Tory party pressure, he shows little appetite, arguing he is in a fiscal straitjacket.

Yet the sheer size of Hunt’s unexpected stealth windfall will be ammunition to those calling for him to hand some of it back.

A sly six-year freeze at a time of high inflation risks damaging the economy by leaving people with less to spend. It reduces incentives to go to work or to aim for promotion. That is no way to tackle the scourge of economic inactivity, with around nine million people of working age out of employment.

Most of all, it is outrageous to try to pull the wool over our eyes.

This is gaslighting on an epic scale.

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