Chancellor Jeremy Hunt has confirmed that a freeze on income tax thresholds, meaning an effective tax rise when people’s pay goes up, will continue for the next three years.
Mr Hunt told the BBC that the freeze on thresholds – agreed in response to Covid – will continue, but said it will end after 2028.
Meanwhile, a Labour minister told BBC Radio 4 that income and other tax thresholds will not change if Labour wins, but a Labour source has since said he meant to say that any future Labour government would freeze income tax rates.
The comments come during the second week of the election campaign with the Conservatives, Labour and the Lib Dems all sparring over taxes.
The income tax threshold is different to the income tax rate.
The threshold refers to the amount of money people need to earn before they begin paying tax or, for those already paying tax, the amount they need to earn before paying a higher rate of tax.
The income tax rate refers to the percentage of a person’s income that is paid in tax.
The threshold usually rises with inflation, but in 2021 the Conservative government froze most bands in response to Covid. The effect is known as “fiscal drag” as it drags more people into paying tax in the first place, and others into higher tax bands.
The Institute for Fiscal Studies has warned that the policy will bring 4.5 million more people into higher income tax thresholds by 2028.
Speaking on the BBC’s Today programme, Mr Hunt said that “a future Conservative government will not increase income [tax] rates and VAT”.
However, when pressed about whether the income tax threshold would stay frozen, Mr Hunt confirmed it would be for the next three years.
“The tax rises that happened as a result of the pandemic and the energy shock — these two giant shocks — will stay for their allotted time period.
“I took the very difficult decision, yes, to increase taxes. And now, in my Budget and in the Autumn Statement last year, I’ve started to bring them down,” he added.
“Have I been able to cancel out all those tax rises? No, but I had to make that commitment. So I can absolutely undertake that the threshold freeze that we introduced until 2028 will not continue after that.”
Later on Thursday, Labour’s shadow chief secretary to the Treasury, Darren Jones, told BBC Radio 4 twice that a future Labour government would freeze income tax, national insurance, and VAT thresholds.
A Labour source has since clarified that Mr Jones meant rates, not thresholds.
The source added that the party intends to follow Tory plans to freeze tax thresholds through to 2028.
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