Anne Widdecombe and Piers Morgan clash over Liz Truss
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The new PM made a series of pronouncements on tax over the course of the Tory leadership campaign. Her main pledges including reversing the 1.25 percent National Insurance (NI) increase introduced in April, scrapping a planned increase in corporation tax from 19 percent to 25 percent and a temporary moratorium on the green levy.
But Tom Minnikin, a Chartered Tax Adviser at Forbes Dawson, said of the NI pledge: “This is the main headline-grabbing measure and will generally be welcomed, particularly amongst the low paid who will benefit the most.
“However, it needs to be balanced against the fact that the Government announced a freezing of various tax allowances and rate bands.”
He added that given the upwards pressure on wages due to the cost-of-living crisis, there is a belief many people will suffer the contrary effects of ‘fiscal drag’, where they end up in higher rate tax bands due to the freezing of thresholds.
An analysis by Forbes Dawson found some middle-income earners on around £45,000 to £50,000, may actually find themselves net worse off over time.
Mr Minnikin said: “Average wages, particularly the high-tech industries, which the Government is keen to see prosper, will undoubtedly be in the affected bracket.
“Liz Truss said ‘no new tax rises’, but the freezing of tax allowances is in effect a tax rise, but more of a ‘stealth’ tax.”
On scrapping the planned rise in corporation tax, he added: “This is badged as a tax cut, although it is not.
“Nevertheless, it will be welcomed by businesses, many of whom we know are, like households, facing cost pressures from rising energy prices, wage inflation etc.
“However, for some companies this is not going to go far enough.
“Businesses, the retail and pub trades are really struggling. These sectors want to see more targeted support, particularly around things like business rates.”
He said Ms Truss may be considering this as a policy measure so it would be interesting to see what came of it.
Mr Minnikin, who specialises in tax affairs faced by businesses and entrepreneurs, added the leadership race was more about what has not been announced than what has.
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He pointed to a lack of detail – other than talking about the main headline tax cuts and the green levy moratorium – about how Ms Truss proposes to deal with spiralling energy prices.
The tax expert concluded: “A lot of the policies are very broad in their application [such as] the NI reduction, which although progressive benefits both poorer and richer households.
“Businesses and households might benefit more from targeted tax policies that help those most in need.
“This feeds into the levelling up agenda, which the Government is keen to demonstrate progress on.”
Ms Truss is believed to be considering a freeze on household energy bills to try to avert a winter cost-of-living crisis for millions of households, according to one source, who would not be named.
Public borrowing would be used to fund the gap between current prices and an 80 percent rise in the amount suppliers can charge customers from October under the plan prepared by government officials, the source said.
The cost of the move, which will last until at least January, could eclipse the £70billion bill for the COVID-19 furlough scheme, but the government had decided it needed to act, the source familiar with the situation said.
The cost is likely to be recovered by a levy on bills payable over 10 to 15 years, said the source, who declined to be named because the plans are still under consideration.
Energy suppliers and Labour have called for a freeze on gas and electricity bills.
The average bill is due to jump to £3,549 a year next month with further hikes forecast next year.
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