Teachers and nurses face tax increase after mini-budget hands cut to bankers | Mini-budget 2022

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    Teachers and nurses will see their income taxes increase next year while top bank bosses will enjoy a cut worth more than £100,000, according to a new analysis of Kwasi Kwarteng’s mini-budget.

    While the tax-cutting package brought forward a promised reduction in the basic rate of income tax from 20% to 19%, that cut will be more than offset by a decision to freeze the point at which people start paying tax. It means that some key workers will be paying more income tax next year.

    A teacher on a starting salary of £25,700 will see their income tax rise by £121 in 2023-24 once the threshold freeze is taken into account, according to research by the Liberal Democrats. An NHS nurse will also face a £107 rise. Meanwhile, a top banker earning £2.5m will enjoy a tax cut of more than £117,000.

    The Lib Dems pointed out that the government’s tax giveaway to one top-earning banker would be enough to cancel the tax increase for more than 1,000 nurses.

    Tax changes

    “It is staggeringly unfair that this Conservative government is hiking taxes on our nurses and teachers, while giving big businesses and banks a massive tax giveaway,” said Ed Davey, the Lib Dem leader.

    “Cutting taxes for the most wealthy while hammering ordinary families with years of stealth taxes shows just how out of touch this government has become.”

    Paul Johnson, director of the Institute for Fiscal Studies, said: “Certainly, in the medium term, the four-year freeze in the personal allowance and other tax thresholds is really quite a big tax rise. And that does mean that, by the end of the period, anyone who’s not earning more than £150,000 will be somewhat worse off.”

    However, government aides say that the vast majority of workers will benefit from the cut to the basic rate of tax, as well as the cap to energy prices set to save households about £1,000 this winter.

    The impact of the budget on the nation’s personal finances is already being felt among mortgages lenders. The tax cuts have put further pressure on the Bank of England to increase interest rates in order to keep inflation under control. Financial experts are warning of a “rate shock” and the risk of increasing mortgage defaults after seven base rate rises in the last 10 months.

    The Bank increased the official rate to 2.25% on Thursday, the highest level since the financial crisis in 2008. The Bank rate was just 0.1% last December.

    Some financial commentators have said the Bank may need to make a further interest rate rise as early as this week to calm the stock markets after Kwarteng’s inflationary fiscal statement.

    Neal Hudson of BuiltPlace, a property research organisation, said: “This is scary. Affordability is going to be very stretched. Even mortgage rates as low as 3% or 4% can be as painful as high interest rates in previous decades because people borrow a lot more relative to their income compared with the 1980s.”

    More than nine out of 10 borrowers in recent years have opted for fixed-rate mortgages but are likely to face a steep increase in repayments when their deals end.

    David Hollingworth of mortgage broker L&C said: “The big problem is going to be rate shock. The impact on the monthly budgets are going to be substantial at a time householders are being buffeted by all sides by rises on food, fuel and energy bills. We have a generation of borrowers who have known little else than base rate at rock-bottom levels.”

    Cheaper fixed-rate deals are rapidly being pulled from the market. An analysis this month by Moneyfacts, a leading provider of retail financial data, found the number of mortgage deals available fell by more than 500 in September. The average fixed five-year rate has risen from 2.63% in September last year to 4.33% this month.

    Despite repeated increases in interest rates, UK houses prices rose by 15.5% in the year to July 2022. Experts say a property downturn now looks inevitable.

    Ray Boulger, senior mortgage technical manager at broker John Charcol, said: “It’s surprising that the housing market has held up so well for so long, but there are clear signs now that buyers’ interest is falling. Over the next year, with increases in living costs and the rises in mortgage rates, I think it will mean property prices fall.

    “A year ago, anybody with a large deposit could get a five-year fixed rate of 1%, and now we are looking at rates of 4%. It will have an increasing effect on the market.”

    Many borrowers now have significant equity in their homes because of the rises in property values, but there are concerns that defaults could increase. Colette Bowe, an external member of the Bank’s financial policy committee, warned in a speech earlier this month of the impact of rising interest rates. She said: “We may see some increase in defaults or households needing to make sharp and difficult cuts to their spending.”

    https://www.theguardian.com/uk-news/2022/sep/24/teachers-and-nurses-face-tax-increase-after-mini-budget-hands-cut-to-bankers

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