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The financial secretary to the Treasury has given his “absolute commitment” to reduce the UK’s tax burden and smooth out anomalies in the tax system, but he also stressed that both needed to be done in a responsible way.
“Reducing the tax burden is an absolute commitment . . . We want to put money back in people’s pockets,” said Nigel Huddleston, the Conservative MP for Mid Worcestershire who took up his ministerial appointment last November.
Workers have now started to feel the effects of National Insurance cuts announced at the Autumn Statement. However, frozen income tax thresholds have dragged millions into a higher tax bracket, leading to expectations of further tax cuts in the Budget next month. “Hopefully, we’ll be able to do that again, but we’ll only do so if the finances allow, and we’ll do so in a responsible way,” Huddleston said.
Interviewed on the FT’s Money Clinic podcast, the minister spoke of his desire to address long-standing anomalies in the tax system, including the ‘cliff edge’ income thresholds of £100,000 and £50,000 where punitive tax rates can apply.
“We are trying to smooth out these anomalies and trying to get them out of the tax system because it does lead sometimes to distorting behaviour which is not what we want,” the minister said, adding: “We want to encourage people to work, and to work more if they are willing and able to do so.”
As inflation pushes up pay, more higher earners face a 60 per cent marginal tax rate on income between £100,000 and £125,140 as the personal allowance is tapered away.
Parents also lose their entitlement to childcare benefits if one partner has an adjusted net income of more than £100,000, meaning a small pay rise could leave them many thousands of pounds worse off.
Similarly, if one parent has an adjusted net income of more than £50,000 their entitlement to child benefit is clawed back via the high-income child benefit charge. The benefit tapers away completely once earnings reach £60,000.
The £50,000 threshold has been in place since 2013 when the policy was first introduced, but would be more than £67,000 had it risen in line with inflation.
Since then, millions of families have lost the entitlement to child benefit and widespread confusion has led to thousands of parents receiving fines for not paying the tax. Others have turned down work to avoid crossing the threshold.
Tax campaigner Dan Neidle has previously highlighted the case of a social worker with three children who cut their working hours so their earnings did not go over £50,000, after calculating that for every £1 over £50,000 they would earn just 15p.
Huddleston was also quizzed about the Lifetime Isa property price cap of £450,000, which has never increased with inflation, amid complaints that first-time buyers are being penalised by withdrawal penalties.
“For the vast majority of people, that £450,000 limit is enough, but we do understand that there are some pockets of the country where that’s not enough, and we’re always listening and open to ideas,” he said.
He would not be drawn on whether the March Budget would formally address any of these issues, but stressed: “When we say taxes are always under review, they genuinely are.”
“When addressing anomalies, we need to look at the tax system as a whole,” Huddleston said on the podcast. “As the tax person, I’m never going to be the most popular person, but I can tell you we do want to try and simplify where and when we can. The tax system does need to be fair. It needs to be simple as possible . . . it needs to be balanced.”
To listen to the interview, click the player button above or search for “Money Clinic” wherever you get your podcasts.
