This Is How Much Liz Truss’s Tax Cuts Will Impact Your Bank Balance

Liz Truss has promised to “grow” the UK economy – but what does this actually mean for your bank balance?

New analysis from the Institute for Fiscal Studies (IFS) claims that the prime minister is effectively introducing a “stealth” tax raid through new policies.

Here’s what you need to know.

Put bluntly…

The IFS believe that for every £1 awarded to workers by cutting main tax rates – such as National Insurance contributions – £2 will be taken away by the government.

It explains: “In every income decile, the average impact of gradual roll-outs and freezes outweighs the impact of the explicit discretionary policy changes.”

The think tank points out that Truss’s headline tax changes, new policies and the ongoing freeze for taxes and benefits work out to be “broadly regressive”.

How will the poorest be impacted?

IFS calculated that the poorest in the UK would see their incomes hit the hardest over the next three years, and are set to receive just an extra £13 per year pay rise from the recent measures.

Overall, due to the tax freezes, the poorest 10% will actually see their overall take home reduced by 2.8%.

Additional findings from the Runnymede Trust also found that Black and minority ethnic people are more likely to be in deep poverty than white people, as there have been racial inequalities to social security cuts over the past decade.

What about the richest?

The wealthiest will get an extra £2,290 a year on average, due to cuts on national insurance and income tax.

When the freezes are taken into account, the wealthiest will see a fall of only 1.1% in total.

Truss may have cut the 45p tax cut rate (meant to benefit only earners who take home more than £150,000 each year), but that’s just small fry compared to the rest of the policies which are still in place.

Here’s why…

Truss and her chancellor Kwasi Kwarteng introduced £45 billion of unfunded tax cuts earlier this month, which the IFS believe will put “considerable strain” on the UK’s public finances.

  • National insurance rise (of 1.25 percentage points) will be reversed from November
  • Basic rate of income tax cut by 1p from current 20p level, from April 2023
  • Plan to increase corporation tax to 25% have been dropped, so it will stay at 19%
  • Bankers’ bonus cap cut – now they can exceed twice the banker’s salary
  • House-buyers only pay stamp duty tax on properties over £250,000, instead of £125,000, while first-time buyers will not pay stamp duty on the first £425,000.

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