Truss tax cuts overtaken by tax freezes, research suggests

The think tank found that by 2025-26 freezes to thresholds such as income tax and benefits will see people lose more money than from the personal tax cuts announced by the Government last month.

It comes following Liz Truss first conference speech as Tory leader on Wednesday, which saw her reiterate her intention to lower the tax burden as it is “the right thing to do morally and economically”.

“The Conservative Party will always be the party of low taxes,” she told party supporters in Birmingham yesterday.

The mini-budget set out cuts including a reduction in national insurance contributions, as well as the 1p cut to the basic rate of income tax.

However, the IFS noted that measures such as the four-year freeze to the personal allowance will see 1.4 million more people pay income tax.

Tom Wernham, a research economist at IFS and an author of the report, said: “Giving with one hand and taking with the other in this way is opaque and stealthy – and when inflation is volatile the impact can vary hugely from what the Government initially intended.

“For example, the unexpected bout of inflation we’re now facing means that the freeze to income tax thresholds is around four times as big a tax rise as expected when the policy was announced.”

It comes as the Labour Party analysis found that families in Yorkshire could face mortgage hikes of over £350 a month following the knock-on effect of Ms Truss’ economic plan.

Mortgage rates are set to rise to as much as 6 per cent, and could see those in London forced to pay over £900 more in monthly repayments.

Sir Keir Starmer, the Labour leader said:“These eye-watering mortgage increases will cause homeowners across the country sleepless nights – and the Tory Government is entirely to blame.

“Liz Truss and Kwasi Kwarteng crashed the economy with their attempts to hand enormous, unfunded tax cuts to those who least need it. The humiliating U-turn they were forced into came too late - the damage had been done.

“Now we are all suffering the consequences. This was a crisis made in Downing Street but paid by working people.

Yesterday the pound has wiped out its gains from earlier in the day, falling in value against the US dollar following the Prime Minister’s speech at the Conservative Party conference.

Sterling dipped by 1.4 per cent to 1.1312 dollars shortly after Liz Truss told the conference that the Government was making “difficult but necessary” choices to stimulate economic growth.

Concerns over how that deficit will be funded has prompted the costs of government borrowing, known as gilt yields, to rise.

Ten-year gilt yields rose by nearly 4 per cent on Wednesday afternoon after Ms Truss’s speech at the party conference.

Last week, the Bank of England stepped in to calm spiralling gilt yields and prevent some pension schemes from collapse.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “[Liz Turss] may have hoped that her triple promise of growth would have calmed markets further but with nothing new to offer on the table, her words have not had the desired effect so far.