Jeremy Hunt is expected to increase the number of people paying the highest tax rate by lowering the minimum level by £150,000, according to Treasury sources.
The move to increase the number of taxpayers paying the 45 pence tax rate is a shift in the handbrake from the government of Liz Truss, who has proposed scrapping the rate altogether.
A Treasury source said there was an option to raise the main tax rate, but that there was likely to be a “significant reduction” of the minimum for high-income earners.
In his autumn statement next Thursday, Hunt will outline the tax increases and spending cuts totaling £60 billion, roughly divided into £35 billion in spending cuts and £25 billion in tax increases.
The move to increase the minimum rate to 45p would be consistent with Hunt’s public pledge that tax increases should hit those with “broad shoulders,” although it is expected to freeze lower tax thresholds, bringing billions to the Treasury as more income earners are dragged. to different tax ranges due to inflation.
However, the Treasury has ruled out making changes to the tax credit for higher-rate pensions, due to concerns that doing so could discourage saving and hurt middle-income earners.
Ministers are also discussing the possibility of significant tax increases by allowing changes to be made to the rules that councils must hold referendums if they raise taxes by more than 2.99%.
Hunt and Rishi Sunak have put the bulk of the fiscal pressure on spending cuts, although the statement will stick to a review of current spending for the next two years – which will likely see pressure on departmental spending due to inflation. But departments are likely to see a drop in spending after that point.
“Even as austerity budgets are rising, rates will be much lower than they were,” said one British government source.
Sunak and Hunt are said to be keen to avoid real cuts to benefits or break the lock on triple pensions, where billions could be saved by raising both in line with earnings rather than inflation.
Understandably, preliminary work sent to the Office of Budget Responsibility ensured that both could be raised in line with inflation, which many Tory MPs have publicly demanded. However, one senior source said that while Hunt and Sunak’s instinct was to protect pensions and increase benefits, there were still concerns about the current balance of measures to “increase numbers” and that these areas had not been taken off the table. .
The volume of action needed was boosted by the Bank of England’s poor outlook last week, when it predicted that higher interest rates would push the economy into the longest recession since the 1930s.
The bank blamed high energy prices and a tightening labor market for the decision to raise interest rates. Hunt’s financial pressure is likely to exacerbate the outlook, and the bank said the economy is already shrinking and will continue to contract for eight straight quarters through the summer of 2024.
Former Treasury Secretary Harriet Baldwin was elected Wednesday to chair the Treasury committee after her predecessor, Mel Stride, joined the Sunak government.
Baldwin, who previously worked at JPMorgan, had long been skeptical of the Bank of England’s performance and repeatedly lobbied the governor, Andrew Bailey, about low interest rates before Vladimir Putin’s invasion of Ukraine and the subsequent economic turmoil.