UK to claw back ₹41 billion from inflation

The government will claw back 41 billion by removing tax bands and benefits after bringing back 20 billion back to households by reversing the 1.25 percentage point national insurance hike and bringing forward a 1 p income tax cut.

Income tax thresholds were frozen by former chancellor Rishi Sunak in March 2021, a policy still intact. The measure was predicted to raise 8 billion dollars a year for the treasury when it was announced last year.

The inflation, which is running at a 40 year high of 9.9 per cent, means that it is expected to raise 30 billion dollars a year, the IFS said.

A process in which people are forced to pay more tax by inflation is a process called tax drag, a process in which people are forced to pay more tax.

There is far more freeze than headline policies like the 1 p cut to the basic rate of income tax, or the reversal of the health and social care levy, according to Tom Wernham, research economist at the IFS.

He said that giving one hand and taking the other in this way is opaque and stealthy.

The pound fell two per cent after the speech and UK borrowing costs surged, as Truss pledged to smash the high-tax, low-growth cycle.

The IFS believes that 1.4 million Brits will be netted by the tax system under current plans. There will be three times as many top 45 per cent rate taxpayers as compared to when the rate was introduced in 2010.

Due to MPs warnings that it would be voted down in parliament, Truss had to abandon plans to ditch the top 45 per cent income tax rate earlier this week.

The income tax system in the UK has four tiers. They can pay 20 per cent, 40 per cent and 45 per cent depending on their income. Truss wanted to abolish the top rate of income tax.

As a result of the IFS statement, a Treasury spokeswoman said that this government is committed to a high growth and low tax economy and helping people to keep their hard-earned money is a key priority, as is our commitment to cancelling National Insurance and to reduce the basic income tax. The income tax system is very progressive. The top 50 percent of income taxpayers are expected to pay around 92 per cent of the income tax this year, while the bottom 25 per cent are expected to pay just two per cent.