Rishi Sunak tax cuts won’t ease burden, economists warn, as national insurance rate drops

The Institute for Fiscal Studies says personal taxes are rising despite much-hyped Tory tax cuts

Rishi Sunak has been accused of giving tax cuts with one hand while taking with the other, as economists warn the impending national insurance cut will not ease the pressure on household finances.

The respected Institute for Fiscal Studies (IFS) said that personal taxes are rising, despite the PM’s much-hyped tax cuts, while think tank the Resolution Foundation said the lowest paid will face the biggest hit.

It came as Labour accused Mr Sunak of offering voters a “raw deal”, claiming the PM has given £2 worth of tax cuts for every £10 taken. Shadow chancellor Rachel Reeves described the tax cut as a “cynical giveaway”.

Shadow chancellor Rachel Reeves and shadow paymaster general Jonathan Ashworth (right) in Wellingborough, North Northamptonshire, on Friday (PA)

The Tories used last year’s autumn statement to unveil a two per cent cut to national insurance in a bid to boost the party’s fortunes, which chancellor Jeremy Hunt said will save the average worker £450 a year.

It takes effect from Saturday but changes to other taxes, including the controversial freezing of tax thresholds under Mr Sunak as chancellor, mean the tax burden facing households is still rising.

The Resolution Foundation said anybody earning under £26,000 will be worse off, with the tax cut benefiting those earning £50,000 a year the most – to the tune of almost £500.

The IFS said a worker earning the average salary of £35,000 would be £440 worse off by 2028.

And overall, the tax burden is still on course to be the highest since the Second World War.

Adam Corlett, principal economist at the Resolution Foundation, said: “Targeting workers via cutting national insurance is a smarter choice than the options of cutting income tax or inheritance tax.

“But for many, particularly those earning less than £26,000, the tax cut today will be offset by the tax rise that is effectively coming in April, when personal tax thresholds are frozen again.”

Although further tax cuts are likely this spring, the burden will still have risen overall by the end of this parliament.

The IFS described the national insurance cut as “sizeable” but said it comes against a backdrop of “an ongoing, multi-year freeze to personal tax thresholds”.

“Put the two together and this is, overall, actually a tax increase,” deputy director Helen Miller said.

Ms Miller also warned that Britain is “in the midst of a much bigger tax rise” as thresholds are set to remain frozen until 2028.

“By then, an employee earning £35,000 will be paying about £440 a year more,” she said.

Labour has tried to stick the boot in, launching an advertising blitz to highlight “Rishi’s raw deal” over taxes.

Labour has accused Rishi Sunak of offering taxpayers a ‘cynical giveaway’ (The Labour Party)

A mocked-up poster by the party claims families will be £1,200 worse off under his tax plans, and suggests the PM thinks “you should be grateful” to pay £10 more in tax and get £2 off.

It has plastered the ads on a shopfront and ad van in Wellingborough, North Northamptonshire, where Labour is seeking to overturn a Tory majority in an upcoming by-election.

The party has paid to place the advert on the Tory-supporting website Conservative Home, parking its tanks on Mr Sunak’s lawn.

Ms Reeves said: “Under Rishi Sunak’s raw deal, for every extra £10 people are paying in tax they are only getting £2 back.

“Working people know that this month’s tax con is just a cynical giveaway from a weak and out-of-touch Tory government that is desperate to cling onto power, rather than a credible plan to fix our broken economy.

“After 14 years of working people being left worse off under the Conservatives, it’s time for change.

“Rishi Sunak should call an election and give the public the chance to vote for a changed Labour Party that will change Britain for the better.”

The Liberal Democrats also pointed to the impact of frozen tax thresholds on the public, describing 2024 as the “year of the squeezed middle”.

Research by the party suggests that the combined impact of taxes, mortgage rises and food inflation could be a more than £4,700 “hit” on the average household.

After the autumn statement in November, the government has faced pressure from Tory MPs to go further and cut income tax or inheritance tax.

There is speculation that further tax cuts could be announced in the spring budget on 6 March, as Mr Sunak prepares for a general election later this year. This could be Mr Hunt’s last chance to introduce major tax and spending changes before voters go to the polls.