Income tax cuts have featured in every budget in recent years, with tax credits increased, USC changes and the rate at which taxpayers enter the higher 40 per cent rate rising. These have been trumpeted by the minister of the day as putting money back in the pockets of taxpayers. And they have, as tax payments would have been higher had this not happened.
But to really understand what is going on and the impact on us all as income taxpayers, we need to take something else into account. And that is inflation and specifically the amount that wages rise each year. When we consider the impact of this, the actual burden of income tax has not fallen at all in recent years, despite the annual hoopla.
This makes reports that the Government has not yet provided for an income tax package in next week’s budget all the more important. When wage inflation is counted in, this means the average tax rate paid by many on their incomes will rise in 2028. It is a tax rise by stealth. Doing this, while at the same time giving a big cash boost to one sector – hospitality – via a VAT cut, and perhaps one to construction too via a cut on VAT on some building projects – is bound to be controversial.
In an analysis thi
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