Recent reports from the Institute for Fiscal Studies and the Resolution Foundation indicate significant financial impacts for pensioners and higher-income groups due to tax and benefit changes under the current UK Conservative government.
Recent analyses by leading think-tanks have shed light on the expected impact of tax and benefit changes under the current UK Conservative government, indicating that pensioners and higher-income groups will likely face significant financial challenges. According to the Institute for Fiscal Studies (IFS), more than 60% of pensioners subject to income tax could see a reduction in their annual income, with those in the higher tax bracket potentially losing over £3,000 a year by 2027. The Resolution Foundation corroborates this view, pointing out that wealthier taxpayers, particularly those in the top income bracket, will be affected most severely by the government’s tax reforms.
In contrast, the government has made efforts to alleviate financial pressures on middle-earning employees and working parents, indicating a strategic shift from the Tories’ traditional focus on older voters. Despite recent cuts to national insurance rates, as announced by Chancellor Jeremy Hunt, leading to what has been described as the lowest level of personal taxes since 1975, the broader tax adjustments, particularly the freezing of tax thresholds, are poised to have an adverse effect on pensioners and wealthier individuals.
Chancellor Hunt’s reduction of national insurance by 2p, resulting in savings for millions of workers and self-employed individuals, represents a significant change in tax policy. However, the Office for Budget Responsibility (OBR) has raised concerns that such benefits may be offset by fiscal drag, where frozen income tax thresholds push earners into higher tax bands. This could potentially increase the overall tax-to-GDP ratio over the next five years, despite the immediate relief provided by tax cuts.
Amid these financial policy changes, Paul Johnson, director of the IFS, has criticised both the Conservative and Labour parties for not being transparent about the need for post-election public spending cuts. With the UK facing substantial fiscal challenges, including a potential requirement for £20 billion in cuts to unprotected departments and an £18 billion reduction in public investment annually, Johnson emphasises the necessity for both parties to be candid about their fiscal plans, especially concerning the sustainability of essential public services like the NHS, local councils, and social care.
As the UK approaches a general election, the unfolding discussion around tax policies, benefit adjustments, and the anticipated impact on various income groups highlights the complexities of managing the nation’s fiscal health.