Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
More than 2mn people in London and the South East are set to be pushed into a higher tax bracket, according to research that underlines the electoral threat to the Conservatives in many of its heartland seats.
Taxpayers in the two regions will be hit hardest by the government’s decision to freeze income tax thresholds rather than raise them in line with inflation, the House of Commons library found.
About 1.1mn taxpayers in London and the South East will be pushed into the higher 40p rate of income tax by 2027-28, according to the research commissioned by the Liberal Democrats.
Just under 1mn people in the two regions will be dragged into paying income tax at the lower 20p rate, the research found. The analysis did not include numbers for the highest 45 per cent rate of tax.
The two regions, where incomes and living costs tend to be higher than the rest of the UK, include key Tory constituencies where the Lib Dems hope to win seats at the general election expected this year.
Chancellor Jeremy Hunt in November confirmed that income tax thresholds would remain static for the next four years, with the resulting “fiscal drag” outweighing his cuts to national insurance.
The Lib Dems are hopeful that the effect of the freezes in the south of the UK will propel disaffected Tory voters into their arms.
The Lib Dems are preparing to heavily target the so-called “blue wall” of marginal Tory-held constituencies across London, the home counties and other parts of the South East and South West.
The party is planning to make an attack on the government’s “stealth taxes” a core pillar of its general election campaign, as it aims to make gains in around 20 wealthier seats in the capital and the South East.
Sir Ed Davey, the Lib Dem leader, will host a new year campaign rally in Surrey on Wednesday, visiting a series of seats including Hunt’s.
The Office for Budget Responsibility estimated in November that more than 7mn people will be dragged into a higher tax bracket in the UK over that period as a result of the threshold freezes. The measure is expected to generate an extra £45bn in annual tax revenues by the end of the decade.
The Commons library analysis used the OBR estimates with a tax simulation tool developed at the University of Essex Institute for Social and Economic Research to give a regional estimate of the impact of fiscal drag.
Sarah Olney, the Lib Dem Treasury spokesperson, said Hunt’s emphasis on tax cuts he unveiled in the Autumn Statement, including reducing national insurance, amounted to “deception” given millions of families are in line to pay more tax due to the frozen income tax thresholds.
She argued that voters would punish the Tories for fiscal drag at the ballot box this year. “Across the blue wall, life-long Conservative voters are sick and tired of this chancellor’s hot air and are getting ready to kick this government out at the next election,” she added.
Laura Trott, chief secretary to the Treasury, said: “The Liberal Democrats would hit hardworking people with numerous new taxes on everyday essentials, including household heating, clothes and fuel.”
She said the Lib Dems were “not being honest with the British people about their plans to hike taxes”, while she insisted the Conservatives were striving to grow the economy and “put more money back into the pockets of hardworking people”.
Labour is also planning to place an assault on the Conservatives’ record on tax at the heart of its election campaign.
On Tuesday Sir Keir Starmer’s party launched an online “Tory tax calculator” that allows people to enter their salary band to work out how much their taxes have gone up under the government.
It is designed to show that workers are paying more tax thanks to frozen income tax thresholds even after Hunt’s two percentage point cut to employees’ national insurance, which comes into effect on January 6.
Labour claimed the government has raised taxes 25 times since the last general election.
The Conservatives are gearing up to use the scale of Starmer’s proposed £28bn green borrowing plan as a key attack line. The Tories argue the initiative will have to be paid for with tax rises.
“Despite criticism from Labour about actions we’ve taken to pay back
Covid debt, Labour cannot name a single tax they would cut,” said
Trott. She added that Labour’s £28bn plan “would hike up taxes on families”.
