Philip Hammond is preparing his November 22 Budget against a tough backdrop, as sluggish productivity eats into growth forecasts and with Brexit stifling investment © Getty
Philip Hammond, the chancellor of the exchequer, is considering announcing a freeze on tax thresholds in next month’s Budget as he looks to fill an £8bn hole in the public finances.
The proposal emerged after photographers in Downing Street snapped an “unknown” politician or official entering 11 Downing Street, the chancellor’s residence, with a partly covered document discussing options for freezing the points at which people start to pay money to the government. These had been set to rise later in this parliament.
The Conservatives promised in their manifesto to raise the income tax threshold to £12,500 by 2020, up from its current rate of £11,500.
They have also promised to increase to £50,000 the point at which people begin paying the higher 40p tax rate by 2020, up from £45,000 now. However, Mr Hammond could still honour both promises while saving billions of pounds over the parliament.
One option, which appears to be floated in the partially obscured document captured by Political Pictures, would be to meet the 2020 manifesto commitment but then to pre-announce a freeze thereafter until the end of the parliament in 2022.
The Treasury declined to comment. But Torsten Bell, director of the Resolution Foundation, said such a move would save Mr Hammond “in the low billions a year” because the Treasury would not uprate the threshold in line with inflation.
Another money-saving option would be for Mr Hammond to freeze the thresholds now — or increase them only in line with inflation — and make a single “jump” to the manifesto target in 2020. That would also save money in the intervening years.
Mr Bell said he was “reassured” that the Treasury was considering such a move. “It would be good for the tax base, it would be progressive, and it would start to undo some of the damage done to the tax base caused by big income tax cuts the country didn’t need and cannot afford.”
Although the bearer of the briefing note was not identified, there was speculation that it may have been a junior minister in the Treasury. The blue cover of a briefing pack was folded back to reveal some contents.
It included snatches such as “manifesto and then freeze it thereafter …” and “and then freeze at £12.5k” and “then freeze at £50k”.
Mr Hammond is preparing his November 22 Budget against a tough backdrop, as sluggish productivity eats into growth forecasts and with Brexit stifling investment.
He also has an £8bn hole to fill over the lifetime of the parliament, including the £1bn offered to the Democratic Unionist party by Theresa May to assemble a Commons majority, £2bn from the abandoned plan to raise national insurance rates for the self-employed and promises on student fees and housing.