Chancellor expected to maintain ‘triple tax lock’ pledge

Rishi Sunak is planning to maintain the Conservative Manifesto commitment of a “tax triple lock”, according to reports.

The Financial Times has reported that the Chancellor is not expected to raise the rates of Income Tax, National Insurance or Value Added Tax (VAT), despite the deficit caused by the coronavirus pandemic.

The government’s public sector borrowing between April and December last year reached £270.8bn, according to figures from the Office for Budget Responsibility, with UK borrowing expected to reach £393.5bn by the end of the financial year in March.

However, the reports indicate that Sunak will not abandon the triple tax lock pledge made in the Conservative Manifesto in 2019, in a move that will potentially force the Chancellor into hiking other tax rates, such as Capital Gains Tax (CGT).

“This could have wide reaching implications for savings, investments and pensions,” commented Aegon pensions director, Steven Cameron.

“A report prepared by the Office of Tax Simplification at the Chancellor’s request into CGT created speculation of an increase in the rate of CGT or a reduction in allowances. This could impact those investing outside tax favoured ISA and pensions wrappers as well as second homeowners.

“There’s also ongoing speculation that Sunak might change the tax breaks on offer to those saving in pensions. One rumour is the Chancellor is attracted to moving to a flat rate of tax relief at 25% rather than topping up individual pension contributions based on the individual’s ‘marginal’ income tax rate.

“While the triple tax lock would mean the protected tax rates couldn’t be increased, there could be other adjustments to how they are applied. One possibility would be to remove the exemption from National Insurance on earnings above state pension age. Another more radical reform would be to align Income Tax and National Insurance treatment of employees and the self-employed.”

Cameron also suggested that a commitment to the tax triple lock might make it harder to commit to the state pension triple lock, which currently increases state pensions at the highest rate of inflation, earnings growth or 2.5% a year, at “considerable cost to those of working age”.

He added: “Those at risk of losing current incentives might seek advice on acting sooner rather than later. It may be that more radical or complex changes take some time to implement because of many complexities, but even if not announced as early as the March Budget, they could feature in a second Budget later in the year.”

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