Mr Zahawi is Prime Minister Boris Johnson’s third Chancellor in as many years, and he has a monumental task ahead of him. While there are a number
Mr Zahawi is Prime Minister Boris Johnson’s third Chancellor in as many years, and he has a monumental task ahead of him. While there are a number of items which will top his agenda, the Chancellor is facing increasing pressure to take immediate action regarding the cost of living crisis.
One option which has been mooted is for Mr Zahawi to unfreeze income tax bands, which many have described as a “stealth tax”.
His predecessor Rishi Sunak already announced the Government’s intention to cut income tax from 20 percent to 19 percent, however, this will only take place from 2024, and experts have called for sooner action.
Laura Suter, head of personal finance at AJ Bell, said: “In fact, over five years the move is wiped out by the Government’s plans to freeze the income tax bands until 2026 – which represents a far bigger tax grab than many realise.
“If Mr Zahawi really wants to help with the cost of living squeeze, he needs to revisit the freeze to income tax bands.
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Based on forecasts from the Office for Budget Responsibility (OBR), the platform estimates personal allowance would reach £15,300 in 2026/27 if uprated in line with inflation.
However, if it is frozen until 2025/26, it would only sit at £12,800.
Rachael Griffin, tax and financial planning expert at Quilter, suggested any proposals by Mr Zahawi may never see the light of day if the Government subsequently collapses.
However, if the incumbent does manage to hold on, he will be facing pressure when it comes to taxation.
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Ms Griffin said: “If Zahawi proves able to stay in the role, it’s important he doesn’t underestimate the electorate.
“They are rapidly waking up to the stealth taxes employed by the current Government, such as the various frozen tax thresholds which are dragging more and more people into paying income tax, and pensions and inheritance taxes.
“The Government need to make public spending far more efficient before they start collecting more taxes.”
In the wake of what has been a torrid period for the party, restoring public confidence and good will is likely to be top of the agenda.
The new Chancellor has already expressed an appetite for cutting taxes, in line with the more traditional values of his party.
He has already said he will review Government plans to raise corporation tax from 19 pence to 25 pence.
In addition, he told Sky News there was “nothing off the table” when it came to tax cuts.
Speaking to presenter Kay Burley, he said: “The most important thing is to rebuild the economy post-pandemic and to get growth going again, and tax cuts.
“We’re delivering the first tax cut in a decade today. I’m determined to do more.”