Jeremy Hunt has confirmed the six-year income tax threshold freeze, which drags millions into paying higher rates, will last until 2028.
The chancellor’s comments on what has been Britain’s biggest tax rise on incomes in at least 50 years give space for Labour to follow suit, meaning that taxes are likely to go up no matter who wins the election.
It came as both the Conservatives and Labour ruled out increasing VAT, income tax and national insurance, in what a leading economics expert said was a move that risked limiting the options of a future government.
As his party launched its first poster of the campaign, seeking to portray Keir Starmer’s party as one that would tax working families, Hunt claimed the “real choice” in the election was between a Tory party that wanted to bring down the tax burden and a Labour party that would keep taxes as they are.
Hunt told Today on BBC Radio 4: “The tax rises that happened as a result of the pandemic and the energy shock – these two giant shocks – will stay for their allotted time period, I can absolutely undertake that the threshold freeze that we introduced until 2028 will not continue after that.”
However, an irked chancellor suggested the BBC was at risk of breaching its impartiality when the BBC Breakfast presenter Charlie Stayt linked the increased mortgage rates that were hitting families to the mini-budget of the former prime minister Liz Truss.
“I really would challenge you, and I know the BBC is fiercely impartial, on making a statement like you’ve just said because if the higher mortgage rates were as a result of Liz Truss, why is it that living standards have fallen further in Germany or Austria or Sweden?” said Hunt.
“The reason why we’ve had 11% inflation and interest rates had to go up is because of [the Russian president, Vladimir] Putin’s invasion of Ukraine and a global pandemic.”
Both parties continued to trade blows on economic policy on Thursday ahead of the launch of their manifestos.
The shadow chief secretary to the Treasury, Darren Jones, declined to say whether Labour would unfreeze tax thresholds in government. He also denied his party had been “bounced into” ruling out VAT rises because of Tory commitments.
“We’ve been very, very clear – even before the election was called – that we want the burden of taxes to come down on working people,” he said. “That’s why we’ve supported the last two cuts to national insurance and why we’ve been consistent in saying we have no plans, no expectations to increase taxes on working people.
“Of course, I would love to do lots of other things that cost lots of money, but I can’t because the Conservatives have crashed the economy, debt has gone through the roof, the cost of the national debt is a huge burden on the Treasury.”
He also claimed the UK’s economic woes began during the austerity period that “failed to get growth back into the economy” and before war broke out in Ukrainein. 2022.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), said it was unclear what both parties had in mind when they ruled out increases in income tax.
“We know. It is baked into the numbers that increases in income tax are happening over the next three years, because thresholds and the allowances are being frozen and that is a significant tax rise over the next few years, so you can find more ways of getting money out of these taxes without raising the rates,” he said.
Part of the problem with ruling out raising rates was that a chancellor or future chancellor was left with “not very good options” and ended up being pushed into niche areas when it came to raising funds in the years ahead, he said.
Asked about Labour’s plans to grow the economy and what shadow chancellor Rachel Reeves’s options might be if that growth did not happen, he said the figures given implied there could be cuts in public service spending over the next several years.
“In order to meet her own fiscal rules – the same fiscal rules that Jeremy Hunt has – she will have to find some real, hard spending cuts or some way of raising taxes,” he said.
