Fiscal Challenges Ahead: Health Secretary Hints at Continued Tax Threshold Freeze Amidst Rising Inflation Concerns

Budget 2024: Health Secretary Cautions of 'Tough Decisions' and Leaves Open Possibility of Maintaining Income Tax Thresholds

Should the income tax thresholds remain unchanged amid climbing inflation, it could result in numerous individuals moving into higher tax brackets.

Political correspondent @alixculbertson

Sunday, October 20, 2024, 5:

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The health secretary has indicated that the upcoming budget will involve making some tough and significant decisions, and did not dismiss the possibility that the chancellor might decide to hold tax thresholds steady.

Wes Streeting informed Trevor Phillips on Sky News' Sunday Morning program that the government "cannot rectify 14 years of issues with a single budget" and there are numerous decisions "we will be forced to consider which we'd rather avoid."

Chancellor Rachel Reeves is anticipated to extend the hold on income tax brackets until 2030, continuing the policy set by the former Conservative government that had initially frozen these thresholds until 2028.

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This implies that, without adjustments for inflation, the thresholds won't increase, consequently pulling hundreds of thousands of individuals into higher tax brackets.

Mr. Streeting provided the clearest signal so far that the government plans to hold those thresholds steady.

In response to a query about whether income tax thresholds would remain unchanged, he informed Trevor Phillips, "The Chancellor and the entire government face tough, significant decisions in the upcoming budget to secure and repair our nation's base, enabling us to construct a brighter future."

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"We are faced with numerous decisions that ideally we wouldn't want to confront. However, if we avoid making these decisions today, we will face far greater consequences for our inaction in the future.

"We are not ready to take that action."

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This budget might make an exception for the NHS – Streeting needs to deliver outcomes.

Political reporter

In a financial plan that tightens belts for many, the NHS might emerge as one of the few beneficiaries.

However, this doesn't mean that Wes Streeting is receiving significant financial backing.

Due to limited financial resources, there are stipulations in place that require improvements in productivity and patient results.

The health secretary has enrolled in this initiative, and this week marks the commencement of the hands-on phase to outline the proposed reforms.

His task is to unite NHS employees and labor unions in this transformative process while securing concrete improvements for patients (the electorate) before the upcoming election.

Leadership involves making decisions, and Sir Keir Starmer has decidedly pinpointed his primary focus for government attention – healthcare.

Every dollar allocated to the NHS represents funding that could have been directed towards other under-resourced areas such as the justice system, educational institutions, or local authorities.

It is crucial that the dynamic new health secretary effectively manages the resources allocated to him.

The finance minister is seeking to secure £40 billion via increased taxes and reduced expenditures, with plans to unveil a series of initiatives in the upcoming budget announcement on October 30.

Mr. Streeting had earlier opposed halting adjustments to income tax levels during Rishi Sunak's tenure with the Conservatives, yet he stated he wouldn't oppose any measures in the chancellor's budget.

The Labour Party previously described the policy as a "hidden tax on the working class" when it was introduced by Mr. Sunak in 2022.

The health secretary reaffirmed the government's commitment to uphold its campaign pledge of not raising income tax, national insurance, or VAT for working individuals, despite existing challenges.

In their manifesto, the Labour Party committed to maintaining current levels of income tax across basic, higher, and top rates, with officials referencing the specific wording used.

Mr. Streeting’s unwillingness to dismiss the possibility of prolonging the threshold freeze implies that the chancellor is confident that maintaining the current 20p, 40p, and 45p tax rates does not violate their promise.

Discover more: Labour may halt changes to income tax limits in upcoming budget following a complaint by Grenfell survivors, a minister has been stripped of their portfolio.

Income tax thresholds refer to the set limits of earnings that determine how much tax an individual must pay. Each person is granted a "personal allowance," which is the specific amount of income one can receive before being subject to income tax. When these

In England, Wales, and Northern Ireland, the income tax threshold stands at £12,750, meaning any earnings below this amount are exempt from income tax.

Tax rates vary based on an individual's income, falling into categories referred to as thresholds:

Standard rate: If you earn between £12,750 and £50,270, you will be taxed 20% on earnings that exceed your personal allowance.

For incomes between £50,271 and £125,140, the tax rate is 40%.

Higher tax bracket: Income over £125,140 is subject to a 45% tax rate.

As income reaches £100,000, the personal allowance begins to decrease at a rate of £1 for every £2 earned above this threshold, up to £125,140, potentially eliminating the personal allowance entirely before taxes are due.

The personal tax-free allowance has remained unchanged since the 2021/22 fiscal year, failing to keep pace with previous adjustments for living costs.

In light of the freezing period, there has been a significant uptick in inflation, and generally, earnings have escalated in response to the inflationary pressures.

As inflation has driven up wages, more individuals are now earning enough to be liable for income tax.

An increasing number of individuals are being pushed into higher tax brackets without receiving substantial salary increases that would improve their financial standing, a phenomenon often referred to as fiscal drag.

As of June, the number of individuals falling into the 40% tax bracket increased by 1.6 million compared to the period before the freeze.

Fiscal drag, often referred to as a "stealth tax," generates a significant amount of revenue for governments to help reduce public debt. According to the OBR, it is projected to bring in over £25 billion annually by the fiscal year 2027/28.

Scottish tax bands vary independently and are not influenced by the UK government in Westminster, since the Scottish Parliament possesses the authority to adjust rates and bands, with the exception of the personal allowance.

The health secretary stated, "It's impossible to resolve 14 years' worth of issues with a single budget. Therefore, we must focus on setting priorities, making choices, and handling trade-offs."

Over the last week, criticism of the government has intensified following revelations that the chancellor is expected to increase national insurance rates for employers.

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Commenting on the matter, Mr. Streeting stated, "I'm not sure whether it will be included in the budget, but we haven't dismissed that or various other options. We made it explicitly clear in our manifesto that every commitment we made was not only achievable but also financially viable, and we intend to fulfill every aspect of that manifesto."

He also disclosed that the chancellor has already determined the NHS budget prior to her scheduled announcement in 10 days.

The deadline for each department to finalize their budget agreements was set for Wednesday evening, but multiple departments failed to reach an agreement with the Treasury regarding the extent of budget reductions they are required to implement in the coming two years, highlighting the potential size of these cuts.

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