Workers earning between £100,000 and £125,140 face an effective tax rate of 60 per cent if Andy Burnham and John Healey refuse to budge on tax thresholds in the Labour Party Autumn Budget, it has been warned.
Makerfield MP Mr Burnham’s Chancellor Mr Healey will deliver his fiscal statement on October 28. Ahead of it, AJ Bell has urged Mr Healey to commit to a Pensions Tax Lock by pledging not to alter tax relief or tax-free cash and prevent damaging speculation pushing people into making knee-jerk decisions about their long-term finances.
Frozen Thresholds Continue to Hit Higher Earners
Sarah Coles adds: “Even if there’s nothing announced to specifically target these groups, frozen thresholds will continue to hit hard. Each pay rise will push many higher earners closer to the £100,000 point, and creeping over this can be incredibly costly.”
“Anyone with earnings between £100,000 and £125,140 faces an effective tax rate of 60%, because for every £2 you earn over £100,000, you lose £1 of your personal allowance.
“Once you earn £125,140, you will have lost the allowance entirely, and you move into the 45% tax bracket.
Childcare and Pension Allowance Impacts
“To make matters worse, if you have children, once you cross this threshold, you lose government support for childcare.
“This includes all entitlement to tax-free childcare, worth up to £2,000 per child per year, all of the 30 hours funded term time childcare for nine-month to three-year-old children and half of the 30 hours for children aged between three and four.
“For someone with two children that might be worth more than £25,000 a year. Likewise, crossing the threshold into the tapered annual allowance for pensions can throw a spanner in the works.”
Budget to Spread Money and Power Out of Westminster
Mr Burnham’s government has set a date for a late October budget to “spread money and power” out of Westminster as the new prime minister pushes forward his tax and spending plans.
Mr Healey said Labour was “working fast to restore hope” with the government’s announcements and that he was pushing to “get on with the job” in his first budget as chancellor.
The former Defence Secretary said: “This will be a budget that moves money and power out of Westminster and into every postcode around Britain.
“It will be built on fiscal discipline. It will meet our fiscal rules. It’ll give businesses and families some of the stability they need to plan for the future.”
