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Liz Truss’ tax pledge will cost middle income earners MORE

Express.co.uk already with a Tax Experts understand the impact of his plan to find out who the winners and losers are. Mrs Truss The main promise of the new Prime Minister is to reverse growth by 1.25 percentage points national insurance It entered into force in April this year. Meanwhile, plans to raise corporate tax from 19% to 25% will be scrapped before it takes effect in April 2023.

The idea is to put more money back in the pockets of the public, while giving companies the opportunity to invest. But Tim Shaw, a partner at tax consultancy Forbes Dawson, explained how the tax change could make things worse for middle-income earners and how it was designed to benefit low-income earners, even if those workers saw no d direct tax. To cut.

Middle income people are generally defined as those earning between £30,000 and £50,000 a year. Meanwhile, low-income earners will be closing in on the personal allowance of £12,570.

Ms Truss said during her Conservative leadership campaign that she did not believe in ‘hands off’ and aimed to grow the economy through tax cuts to improve welfare. be families facing skyrocketing food and energy bills.

Mr Shaw explained: ‘It’s not necessarily looking to redistribute income – it’s going back to an older Conservative approach to encouraging growth and hard work, so it’s usually a low-tax economy that does that. .

“So as our economy grows, everyone earns more and everyone has more to do.”

A potential problem with the plan, however, is that while wages may increase, the income tax threshold remains the same, Xiao said. The cost of living crisis has put upward pressure on wages, with recent figures showing wage inflation above 6%.

This could push wage earners into higher tax brackets, even if their wages aren’t working hard for them due to inflation, and actually earning the same income as before the wage increase, while paying more taxes. Forbes Dawson said many would suffer a ‘tax drag’ as a result, and find themselves in a higher tax bracket, even though, as Mr Shaw explained, they would have ‘the same real income’ .

According to their analysis, this will mainly affect people with average incomes of around £45,000 to £50,000, who Forbes Dawson says could end up with worse net incomes over time.

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Tax consultancies describe this as an effective tax increase for these employees. The Institute for Fiscal Studies (IFS) said the reduction would be £7.66 for the lowest income households, but the highest income could get more than £1,800.

However, Shaw explained that tax breaks and corporate tax cuts could still benefit low-income people.

“If you are a lower-paid worker and the company you work for has to pay 6% less corporate tax and saves state insurance on wages and salaries paid to other employees, that gives them more work to do. So you are less likely to lose your job, or more likely to create additional work.

“Either given that we are looking at higher inflation, or you are more likely to get a raise.

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“So the income tax provision may not be immediately better, but it may affect the viability of the business you work for or the ability to have the funds to pay your salary. .”

“I think it’s wrong to look at everything from a redistributive point of view because my aim is to grow the economy and make it work for everyone,” Ms Truss told the BBC.

Ms Truss also reiterated her intention not to continue raising corporation tax for businesses, which she said would be ‘completely counterproductive’.

Mr Shaw added: “Lower-wage workers will see a lower cost of living, lower taxes and higher take-home pay. This does not necessarily mean that it will solve the gap between the lowest and highest incomes – on the contrary, it could make the situation worse.

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